<PAGE>
As filed with the Securities and Exchange Commission on April 13, 1999
Registration No. 333-74351
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
Radio One, Inc.
(Exact name of Registrant as specified in its charter)
---------------
Delaware 52-1166660 4832
(State or other (I.R.S. Employer (Primary Standard Industry
jurisdiction of Identification No.) Classification Number)
incorporation of
organization)
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
ALFRED C. LIGGINS, III
Chief Executive Officer and President
Radio One, Inc.
5900 Princess Garden Parkway, 8th Floor
Lanham, MD 20706
Telephone: (301) 306-1111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With copies to:
RICHARD L. PERKAL, ESQ. ANTOINETTE COOK BUSH, ESQ.
Kirkland & Ellis STEPHEN W. HAMILTON, ESQ.
655 Fifteenth Street, N.W. Skadden, Arps, Slate, Meagher &
Washington, D.C. 20005 Flom LLP
Telephone: (202) 879-5000 1440 New York Avenue, N.W.
Washington, D.C. 20005
Telephone: (202) 371-7000
---------------
Approximate date of commencement of the proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering pur-
suant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier ef-
fective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) un-
der the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Maximum
Title of each Class of Amount Proposed Aggregate Amount of
Securities to be to be Maximum Offering Registration
Registered Registered(/1/) Offering Price Price(/2/) Fee(/3/)
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<S> <C> <C> <C> <C>
Class A Common Stock,
par value $0.01 per
share................ 6,820,000 Shares $21.00 $143,220,000 $39,816
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</TABLE>
(1) Includes 620,000 shares that the underwriters have the option to purchase
from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to paragraph (o) of Rule 457 of the Securities Act.
(3) $35,167 of this fee was previously paid.
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registra-
tion Statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting pur-
suant to said Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 14, 1999
6,200,000 Shares
[LOGO OF RADIO ONE APPEARS HERE]
Class A Common Stock
--------
We are selling 4,355,930 shares of class A common stock and the selling
stockholders are selling 1,844,070 shares of class A common stock.
Prior to this offering, there has been no public market for our class A
common stock. The initial public offering price is expected to be between
$17.00 and $21.00 per share. We have applied to list our class A common stock
on The Nasdaq Stock Market's National Market under the symbol "ROIA."
The underwriters have an option to purchase a maximum of 620,000 additional
shares to cover over-allotments of shares.
Investing in our class A common stock involves risks. See "Risk Factors" on
page 7.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Radio One Stockholders
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total...................................... $ $ $ $
</TABLE>
Delivery of the shares of class A common stock will be made on or about ,
1999, against payment in immediately available funds.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Bear, Stearns & Co. Inc.
BT Alexr Brown
NationsBanc Montgomery Securities LLC
Prudential Securities
Prospectus dated , 1999.
<PAGE>
[Map of Eastern U.S. with ROI radio station logos, call signs and frequencies.]
<PAGE>
------------
TABLE OF CONTENTS
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Radio One's principal executive offices are located at 5900 Princess Garden
Parkway, 8th Floor, Lanham, MD 20706, and our telephone number is (301) 306-
1111.
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 12
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Recent and Pending Transactions.......................................... 16
Unaudited Pro Forma Consolidated Financial Information................... 19
Selected Historical Consolidated Financial Data.......................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 39
Management................................................................. 68
Certain Relationships and Related Transactions............................. 73
Selling Stockholders....................................................... 74
Principal Stockholders..................................................... 75
Description of Capital Stock............................................... 77
Description of Indebtedness................................................ 81
Shares Eligible for Future Sale............................................ 83
Underwriting............................................................... 85
Notice to Canadian Residents............................................... 88
Legal Matters.............................................................. 89
Experts.................................................................... 89
Additional Information..................................................... 89
Index to Financial Statements.............................................. F-1
</TABLE>
i
<PAGE>
PROSPECTUS SUMMARY
This summary contains a general discussion of our business, this offering
and summary financial information. We encourage you to read the entire
prospectus for a more complete understanding of Radio One and this offering.
Except where otherwise noted, all share numbers and per share data in this
prospectus give effect to the capitalization transactions described in
"Capitalization."
RADIO ONE, INC.
Introduction
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our pending acquisitions, we will own and operate 25 radio stations. Twenty-
four of these stations (seventeen FM and seven AM) are in eight of the top 20
African-American radio markets: Washington, D.C., Baltimore, Atlanta,
Philadelphia, Detroit, St. Louis, Cleveland and Richmond. Our strategy is to
expand within our existing markets and into new markets that have a significant
African-American presence. We believe radio broadcasting primarily targeting
African-Americans has significant growth potential. We also believe that we
have a competitive advantage in the African-American market, and the radio
industry in general, due to our focus on formats primarily targeting African-
American audiences, our skill in programming and marketing these formats, and
our turnaround expertise.
We have succeeded in increasing ratings, net broadcast revenue and broadcast
cash flow of all of the FM stations we have owned or managed for at least one
year. Net broadcast revenue consists of revenue from broadcast operations less
commissions paid to agencies for selling air time on our stations. Broadcast
cash flow consists of operating income before depreciation, amortization, local
marketing agreement fees and corporate expenses. The radio stations that we
owned as of December 31, 1998, grouped by market, were ranked first or second
in their markets in combined audience and revenue share among radio stations
primarily targeting African-Americans. Due to successful implementation of our
business strategy, our net broadcast revenue and broadcast cash flow have grown
significantly:
. Net broadcast revenue grew at a compound annual rate of 60.2% from an
actual $23.7 million in 1996 to $60.8 million in 1998, adjusted to
include 1998 results of stations acquired between January 1, 1998 and
March 31, 1999.
. Broadcast cash flow grew at a compound annual rate of 65.3% from an
actual $9.8 million in 1996 to $26.7 million in 1998, adjusted to
include 1998 results of stations acquired between January 1, 1998 and
March 31, 1999.
. Net broadcast revenue and broadcast cash flow of stations we have owned
or, in the case of Radio One of Atlanta, managed since 1996, grew at
average annual rates of 28.0% and 42.7%, respectively, from 1996 through
1998.
. After-tax cash flow grew at a compound annual rate of 206.2% from an
actual $0.8 million in 1996 to $7.5 million in 1998, adjusted to include
1998 results of stations acquired between January 1, 1998 and March 31,
1999.
Radio One is led by our Chairperson and co-founder, Ms. Catherine L. Hughes,
and her son, Mr. Alfred C. Liggins, III, our Chief Executive Officer and
President, who together have over 40 years of operating experience in radio
broadcasting. Ms. Hughes, Mr. Liggins and our strong management team have
successfully implemented a strategy of acquiring and turning around
underperforming radio stations. We believe that we are well positioned to apply
our proven operating strategy to our recently or soon to be acquired stations
in Detroit, St. Louis, Cleveland and Richmond, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
1
<PAGE>
THE AFRICAN-AMERICAN MARKET OPPORTUNITY
We believe that operating radio stations in large African-American
markets, with formats primarily targeting African-American audiences, has
significant growth potential for the following reasons:
. African-Americans are experiencing faster population growth than the
population as a whole.
. African-Americans are experiencing higher income growth than the
population as a whole.
. There is significant growth in advertising targeting the African-
American market.
. We believe there is a growing influence of African-American culture on
American society.
. We believe that radio formats primarily targeting African-Americans are
becoming more popular with mainstream audiences.
. We can reach our target audience with fewer radio stations due to the
concentration of African-Americans in the top 30 African-American
markets.
. African-Americans exhibit stronger radio audience listenership and
loyalty than the population as a whole.
STATION PORTFOLIO
We operate in some of the largest African-American markets. We have also
acquired or agreed to acquire 17 radio stations since January 1, 1998. These
acquisitions diversify our net broadcast revenue, broadcast cash flow and asset
bases and increase the number of top 20 African-American markets in which we
operate from three to eight. The table below outlines our station operations
and summarizes more detailed information provided under "Business,"except
African-American Market information, which is from BIA Fourth Edition, 1998,
or, in the case of Washington, D.C., BIA First Edition, 1999.
RADIO ONE AND OUR MARKETS
<TABLE>
<CAPTION>
RADIO ONE INCLUDING PENDING ACQUISITIONS MARKET DATA
--------------------------------------------- ------------------------------------------------
NUMBER OF AFRICAN-AMERICAN 1998 RANKING BY
STATIONS MARKET ENTIRE MARKET 1998 ANNUAL SIZE OF 1996 MSA POPULATION
--------- ------------------ ---------------- RADIO AFRICAN- ------------------------
AUDIENCE REVENUE AUDIENCE REVENUE REVENUE AMERICAN TOTAL AFRICAN-
MARKET FM AM SHARE RANK RANK SHARE SHARE ($ MILLIONS) POPULATION (IN MILLIONS) AMERICAN %
- ------ ---- ---- ---------- ------- -------- ------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C......... 2 2 1 1 12.0 9.5% $257.0 3 4.2 27.2%
Detroit................. 2 2 2 2 4.7 3.6 211.5 5 4.5 22.5
Philadelphia............ 1 -- 2 2 3.3 2.2 249.1 6 4.9 19.9
Atlanta................. 2 -- 2 3 6.3 4.6 257.7 7 3.6 25.7
Baltimore............... 2 2 1 1 17.0 19.1 100.2 11 2.5 26.0
St. Louis............... 1 -- n/a n/a n/a n/a 109.0 16 2.6 17.2
Cleveland............... 1 1 n/a n/a n/a n/a 97.1 17 2.1 18.7
Richmond................ 6 1 n/a n/a n/a n/a 42.9 19 0.9 30.0
</TABLE>
2
<PAGE>
Business Strategy
We focus on making strategic acquisitions of underperforming radio stations,
improving the performance of these stations and operating them to maximize
profitability.
Acquisitions - Our acquisition strategy is to acquire and to turn around
underperforming radio stations principally in the top 30 African-American
markets. We consider acquisitions in existing markets where expanded coverage
is desirable and in new markets where we believe it is advantageous to
establish a presence. For strategic reasons, or as a result of an acquisition
of multiple stations in a market, we may also acquire and operate stations with
formats that primarily target non-African-American segments of the population.
Turnarounds - We typically enter a market by acquiring a station or stations
that have little or negative broadcast cash flow. Additional stations we have
acquired in existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategy, we have succeeded in
increasing ratings, net broadcast revenue and broadcast cash flow of all the FM
stations we have owned or managed for at least one year. We have achieved these
improvements while operating against much larger competitors.
Operations - In order to maximize net broadcast revenue and broadcast cash
flow at our radio stations, we strive to achieve the largest audience share of
African-American listeners in each market, to convert these audience share
ratings to advertising revenue, and to control operating expenses.
Preferred Stock Offering and Redemption
Concurrent with this offering, we intend to sell $50.0 million of % new
preferred stock. The preferred stock offering is being made by a separate
prospectus. We intend to use the net proceeds of the preferred stock offering
to redeem all of our existing preferred stock, to partially fund pending
acquisitions and to repay amounts borrowed to fund our acquisition of WYCB-AM
in Washington, D.C.
3
<PAGE>
The Offering
Class A common stock offered(/1/)...
4,355,930 shares by Radio One
1,844,070 shares by the selling
stockholders
------
6,200,000 shares of class A common stock
------
------
Common stock to be outstanding
after this offering(/1/)(/2/).......
10,957,771 shares of class A common stock
2,873,084 shares of class B common stock
3,195,064 shares of class C common stock
-------
17,025,919 shares of common stock
-------
-------
Voting Rights....................... Holders of class A common stock are
entitled to one vote per share and are
entitled to elect two independent
directors. Holders of class B common
stock are entitled to ten votes per
share. Holders of class C common stock do
not have voting rights, except as
required by law.
Other Rights........................ Except as to voting and conversion
rights, each class of common stock has
the same rights.
Use of Proceeds..................... Radio One intends to use the net proceeds
of this offering and the preferred stock
offering to:
. repay amounts under our bank credit
facility which will increase debt
capacity for pending acquisitions;
. partially fund pending acquisitions;
. repay amounts borrowed to fund our
acquisition of WYCB-AM in Washington,
D.C.;
. redeem all of our existing preferred
stock; and
. increase our working capital.
Proposed NASDAQ Symbol.............. ROIA
- --------
(1) Excludes 620,000 shares of class A common stock that may be issued to cover
over-allotments of shares.
(2) Excludes shares of class A common stock issuable upon exercise of stock
options outstanding.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following table contains summary historical financial information
derived from the audited consolidated financial statements of Radio One. The
table also contains summary unaudited pro forma financial information derived
from the unaudited pro forma financial information set forth under "Unaudited
Pro Forma Consolidated Financial Information." The summary unaudited pro forma
consolidated financial information does not purport to represent what our
results of operations or financial condition would actually have been had the
transactions described below occurred on the dates indicated or to project our
results of operations or financial condition for any future period or date. The
summary financial data set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Unaudited Pro Forma Consolidated Financial
Information" and the consolidated financial statements of Radio One included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
---------------------------------------------------
Historical 1998 Pro Forma
----------------------------- ---------------------
Completed As
1996 1997 1998 Transactions Adjusted
--------- --------- --------- ------------ --------
(audited) (audited) (audited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue.... $23,702 $32,367 $46,109 $ 60,828 $ 73,043
Station operating ex-
penses.................. 13,927 18,848 24,501 34,118 42,135
Corporate expenses....... 1,793 2,155 2,800 3,213 3,213
Depreciation and amorti-
zation.................. 4,262 5,828 8,445 15,570 20,910
------- ------- ------- -------- --------
Operating income....... 3,720 5,536 10,363 7,927 6,785
Interest expense......... 7,252 8,910 11,455 16,603 14,638
Other income (expense),
net..................... (77) 415 358 329 451
Income tax benefit (ex-
pense).................. -- -- 1,575 2,480 2,060
------- ------- ------- -------- --------
Income (loss) before
extraordinary item.... $(3,609) $(2,959) $ 841 $ (5,867) $ (5,342)
======= ======= ======= ======== ========
Loss applicable to com-
mon stockholders
before extraordinary
item.................. $(3,609) $(4,996) $(2,875) $ (9,583) $(11,128)
======= ======= ======= ======== ========
Earnings per common
share:
Basic and diluted...... $ (.38) $ (.53) $ (.31) $ (.76) $ (.65)
Weighted average common
shares outstanding:
Basic and diluted...... 9,392 9,392 9,392 12,670 17,026
Other Data:
Broadcast cash flow...... $ 9,775 $13,519 $21,608 $ 26,710 $ 30,908
Broadcast cash flow mar-
gin..................... 41.2% 41.8% 46.9% 43.9% 42.3%
EBITDA (before non-cash
compensation expense)... $ 7,982 $11,364 $18,808 $ 23,791 $ 27,989
After-tax cash flow...... 806 2,869 7,248 7,517 13,802
Cash interest expense.... 4,815 4,413 7,192 12,731 10,766
Accreted preferred stock
dividends............... -- 2,037 3,716 3,716 5,786
Capital expenditures..... 252 2,035 2,236 3,921 4,534
</TABLE>
<TABLE>
<S> <C>
Ratio of earnings to combined fixed charges and preferred stock dividends*....... 0.4x
Ratio of total debt to EBITDA (before non-cash compensation expense) ............ 4.9x
Ratio of EBITDA (before non-cash compensation expense) to interest expense ...... 1.9x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense
................................................................................ 2.6x
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data (at period end):
Cash and cash equivalents................. $ 4,455 $ 1,466 $ 2,000
Intangible assets, net.................... 127,639 176,786 257,119
Total assets.............................. 153,856 204,717 289,451
Total debt (including current portion and
deferred interest)....................... 131,739 148,176 137,594
Preferred stock........................... 26,684 26,684 50,000
Total stockholders' equity (deficit)...... (24,859) 8,376 80,376
</TABLE>
- --------
* Earnings were insufficient to cover combined fixed charges and preferred
stock dividends for the fiscal years ended December 31, 1996, 1997 and 1998
by approximately $3.6 million, $5.0 million, and $4.5 million, respectively,
and on a pro forma as adjusted basis for the year ended December 31, 1998 by
approximately $13.2 million. To date, we have not paid any dividends on our
existing preferred stock.
5
<PAGE>
. The pro forma amounts for the year ended December 31, 1998, in the
column "Completed Transactions" are adjusted to give effect to the
following acquisitions as if they had occurred as of the beginning of
the period:
-- Bell Broadcasting Company;
-- Allur-Detroit, Inc.;
-- Radio One of Atlanta, Inc.; and
-- Dogwood Communications, Inc. (by Radio One of Atlanta, Inc.).
. The pro forma amounts for the year ended December 31, 1998, in the
column "As Adjusted" are adjusted to give effect to the completed
transactions described above and the following pending acquisitions and
other transactions as if they had occurred as of the beginning of the
period:
-- the pending acquisitions:
. assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WENZ-FM and WERE-AM in Cleveland;
. WDYL-FM in Richmond;
. WKJS-FM and WSOJ-FM in Richmond; and
. WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond.
-- this offering;
-- the preferred stock offering;
-- the redemption of all of our existing preferred stock; and
-- the repayment of debt.
. The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred on December 31,
1998.
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of class A common stock of
Radio One.
Substantial Debt - Due to high principal and interest payments, our substantial
level of debt could limit our ability to grow and compete.
As of December 31, 1998, after giving effect to the transactions described
under "Unaudited Pro Forma Consolidated Financial Information" as if they had
occurred on that date, we would have had outstanding total debt of $137.6
million (including $59.0 million bearing interest at variable rates), new
preferred stock with an aggregate liquidation preference of $50.0 million and
stockholders' equity of $80.4 million.
Our substantial level of indebtedness could adversely affect us for various
reasons, including limiting our ability to:
. obtain additional financing for working capital, capital expenditures,
acquisitions, debt payments or other corporate purposes;
. have sufficient funds available for operations, future business
opportunities or other purposes;
. compete with competitors that have less debt than we do; and
. react to changing market conditions, changes in our industry and
economic downturns.
Restrictions Imposed by Our Debt - The terms of our debt restrict us from
engaging in many activities and require us to satisfy various financial tests.
Our bank credit facility and the agreements governing our other outstanding
debt and new preferred stock contain covenants that restrict, among other
things, our ability to incur additional debt, pay cash dividends, purchase our
capital stock, make capital expenditures, make investments or other restricted
payments, swap or sell assets, engage in transactions with related parties,
secure non-senior debt with our assets, or merge, consolidate or sell all or
substantially all of our assets.
Our bank credit facility also requires us to get our banks' consent before
we make acquisitions. This restriction may make it more difficult to pursue our
acquisition strategy. Our bank credit facility also requires us to maintain
specific financial ratios. Events beyond our control could affect our ability
to meet those financial ratios, and we cannot assure you that we will meet
them.
All of the loans under our bank credit facility are due on December 31,
2003. A breach of any of the covenants contained in our bank credit facility
could allow our lenders to declare all amounts outstanding under the bank
credit facility to be immediately due and payable. In addition, our banks could
proceed against the collateral granted to them to secure that indebtedness. If
the amounts outstanding under the bank credit facility are accelerated, we
cannot assure you that our assets will be sufficient to repay in full the money
owed to the banks or to our other debt holders.
History of Net Losses - If we have losses in the future, the market price of
our common stock and our ability to raise capital could be adversely affected.
We cannot be certain that we will achieve or sustain profitability. Failure
to achieve profitability may adversely affect the market price of our common
stock, which in turn may adversely affect our ability to raise additional
equity capital and to incur additional debt. Since 1994, we have experienced
net losses in three out of five years. After giving effect to the transactions
described under "Unaudited Pro Forma Consolidated Financial Information," as if
they had occurred on January 1, 1998, we had net losses of $5.3 million for the
year ended December 31, 1998.
The primary reasons for these losses are significant charges for
depreciation and amortization relating to the acquisition of radio stations and
interest charges on our outstanding debt. If we acquire additional stations,
these charges will probably increase.
7
<PAGE>
Dependence on Key Personnel - The loss of key personnel could disrupt the
management of our business.
Our business depends upon the continued efforts, abilities and expertise of
our executive officers and other key employees. We intend to enter into
employment agreements with several of our key employees, including Ms.
Catherine L. Hughes, Mr. Alfred C. Liggins, III, and other executive officers.
We believe that the unique combination of skills and experience possessed by
these individuals would be difficult to replace, and that the loss of any one
of them could have a material adverse effect on us. These adverse effects could
include the impairment of our ability to execute our acquisition and operating
strategies and a decline in our standing in the radio broadcast industry.
Competition - We compete for advertising revenue against radio stations and
other media, many of which have greater resources than we do.
Our stations compete for audiences and advertising revenue with other radio
stations and with other media such as television, newspapers, direct mail and
outdoor advertising. Audience ratings and advertising revenue are subject to
change and any adverse change in a market could adversely affect our net
broadcast revenue in that market. If a competing station converts to a format
similar to that of one of our stations, or if one of our competitors
strengthens its operations, our stations could suffer a reduction in ratings
and advertising revenue. Other radio companies which are larger and have more
resources may also enter markets in which we operate. Although we believe our
stations are well positioned to compete, we cannot assure you that our stations
will maintain or increase their current ratings or advertising revenue.
Risks of Acquisition Strategy - Our growth depends on successfully executing
our acquisition strategy.
We intend to grow by acquiring radio stations primarily in top 30 African-
American markets. We cannot assure you that our acquisition strategy will be
successful. Our acquisition strategy is subject to a number of risks,
including:
. Our pending acquisitions may not be consummated;
. Acquired stations may not increase our broadcast cash flow or yield
other anticipated benefits;
. Required regulatory approvals may result in unanticipated delays in
completing acquisitions;
. We may have difficulty managing our rapid growth; and
. We may be required to raise additional financing and our ability to do
so is limited by the terms of our debt instruments.
Controlling Stockholders - Two common stockholders have a majority interest in
Radio One and have the power to control matters on which Radio One's common
stockholders may vote.
Upon completion of this offering, Ms. Catherine L. Hughes and her son, Mr.
Alfred C. Liggins, III, will collectively hold approximately seventy-two
percent (seventy-one percent if the underwriters exercise their over-allotment
option) of the outstanding voting power of Radio One's common stock. As a
result, Ms. Hughes and Mr. Liggins will control most decisions involving Radio
One, including transactions involving a change of control of Radio One, such as
a sale or merger. In addition, certain covenants in Radio One's debt
instruments require that Ms. Hughes and Mr. Liggins maintain specified
ownership and voting interests in Radio One, and prohibit other parties' voting
interests from exceeding specified amounts. Ms. Hughes and Mr. Liggins have
agreed to vote their shares together in elections to the board of directors.
8
<PAGE>
Technology Changes, New Services and Evolving Standards - We must respond to
the rapid changes in technology, services and standards which characterize our
industry in order to remain competitive.
The radio broadcasting industry is subject to rapid technological change,
evolving industry standards and the emergence of new media technologies. We
cannot assure you that we will have the resources to acquire new technologies
or to introduce new services that could compete with these new technologies.
Several new media technologies are being developed, including the following:
. Audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. Satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. In-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same bandwidth currently
occupied by traditional AM and FM radio services.
We recently entered into a programming agreement with a satellite digital
audio radio service and have also invested in a developer of digital audio
broadcast technology. However, we cannot assure you that these arrangements
will be successful or enable us to adapt effectively to these new media
technologies.
Importance of the Washington, D.C. and Baltimore Markets - A large portion of
our net broadcast revenue and broadcast cash flow comes from these markets.
Based upon the stations we owned or managed at the end of 1998, our radio
stations in Washington, D.C. and Baltimore collectively accounted for 62.9% and
70.0% of our net broadcast revenue and broadcast cash flow, respectively, for
the year ended December 31, 1998, adjusted to include 1998 results of stations
acquired between January 1, 1998 and March 31, 1999. A significant decline in
net broadcast revenue or broadcast cash flow from our stations in either of
these markets could have a material adverse effect on our financial position
and results of operations.
Government Regulation - Our business depends on maintaining our licenses with
the FCC. We cannot assure you that we will be able to maintain these licenses.
Radio broadcasters depend upon maintaining radio broadcasting licenses
issued by the FCC. These licenses are ordinarily issued for a maximum term of
eight years and may be renewed. Our radio broadcasting licenses expire at
various times from October 1, 2003 to August 1, 2006. Although we may apply to
renew our FCC licenses, interested third parties may challenge our renewal
applications. In addition, if Radio One or any of our stockholders, officers,
or directors violates the FCC's rules and regulations or the Communications Act
of 1934, as amended, or is convicted of a felony, the FCC may commence a
proceeding to impose sanctions upon us. Examples of possible sanctions include
the imposition of fines; the revocation of our broadcast licenses; or the
renewal of one or more of our broadcasting licenses for a term of fewer than
eight years. If the FCC were to issue an order denying a license renewal
application or revoking a license, we would be required to cease operating the
radio station covered by the license only after we had exhausted administrative
review without success.
The radio broadcasting industry is subject to extensive and changing federal
regulation. Among other things, the Communications Act and FCC rules and
policies limit the number of broadcasting properties that any person or entity
may own (directly or by attribution) in any market and require FCC approval for
transfers of control and assignments. The filing of petitions or complaints
against Radio One or any FCC licensee from which we are acquiring a station
could result in the FCC delaying the grant of, or refusing to grant or imposing
conditions on its consent to the assignment or transfer of licenses. The
Communications Act and FCC rules also impose limitations on non-U.S. ownership
and voting of the capital stock of Radio One.
9
<PAGE>
Antitrust Matters - We may have difficulty obtaining regulatory approval for
acquisitions in our existing markets and, potentially, new markets.
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
U.S. Department of Justice has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy.
Recently, the Justice Department has challenged a number of radio broadcasting
transactions. Some of those challenges ultimately resulted in consent decrees
requiring, among other things, divestitures of certain stations. In general,
the Justice Department has more closely scrutinized radio broadcasting
acquisitions that result in local market shares in excess of 40% of radio
advertising revenue. Similarly, the FCC has announced new procedures to review
proposed radio broadcasting transactions even if the proposed acquisition
otherwise complies with the FCC's ownership limitations. In particular, the FCC
may invite public comment on proposed radio transactions that the FCC believes,
based on its initial analysis, may present ownership concentration concerns in
a particular local radio market.
Shares of Common Stock Eligible for Future Sale - Future sales by existing
stockholders could depress the market price of the class A common stock.
Immediately after this offering, the public market for the common stock will
include only the 6,200,000 shares that we and the selling stockholders are
selling in this offering, assuming the over-allotment option is not exercised.
At that time, there will be an additional 10,825,919 shares of common stock
outstanding. The shares held by our existing stockholders are subject to "lock-
up" agreements that prohibit existing stockholders from selling their shares of
common stock in the public market for 180 days after the date of this
prospectus. When the 180-day "lock-up" period expires, or if Credit Suisse
First Boston consents, in its sole discretion, to an earlier sale, our existing
stockholders will be able to sell their shares in the public market, subject to
certain legal restrictions. If our existing stockholders sell a large number of
shares, the market price of shares of common stock could decline dramatically.
Moreover, the perception in the public market that these stockholders might
sell shares of common stock could depress the market price of the common stock.
Furthermore, our existing stockholders have the right to require us to register
their shares, which may facilitate their sale of shares in the public market.
No Prior Public Market - Investors will pay a price for shares of class A
common stock that was not established in a competitive market and the price
that prevails in the market may be lower.
Prior to this offering, there has been no public market for the class A
common stock. We have applied to list the class A common stock for trading on
the Nasdaq's National Market. After this offering, an active trading market
might not develop or continue. If you purchase shares of class A common stock
in this offering, you will pay a price that was not established in a
competitive market. Rather, you will pay a price that we negotiated with our
underwriters and the selling stockholders, which is substantially greater than
the price paid by our existing stockholders. The price of the class A common
stock that will prevail in the market after this offering may be higher or
lower than the price you pay. For a description of the factors we will consider
in negotiating the public offering price, see "Underwriting."
Year 2000 - Computer programs and microprocessors that have date sensitive
software may recognize a date using "00" as year 1900 rather than 2000, or not
recognize the date at all, which could result in major system failures or
miscalculations.
We rely, directly and indirectly, on information technology systems to
operate our radio stations, provide our radio stations with up-to-date news and
perform a variety of administrative services, including accounting, financial
reporting, advertiser spot scheduling, payroll and invoicing. We also use non-
information technology systems, such as microchips, for dating and other
automated functions. We are in the process of assessing and remediating
potential risks to our business related to the Year 2000 problem. Although we
believe that, as a result of these efforts, our critical systems are or will be
substantially Year 2000 ready, we cannot assure you
10
<PAGE>
that this will be the case. One of our greatest potential Year 2000 risks may
be that third parties with whom we deal will fail to be Year 2000 ready. For
example, if our programming suppliers or key advertisers experience significant
disruptions in their businesses because of the Year 2000 problem, we may lose
access to programming and significant advertising revenue.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are not historical facts, but rather are
based on our current expectations, estimates and projections about Radio One's
industry, our beliefs and assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
are intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus. We are not obligated to update these statements or publicly release
the result of any revisions to them to reflect events or circumstances after
the date of this prospectus or to reflect the occurrence of unanticipated
events.
11
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering to Radio One, after deducting
underwriting discounts and commissions and estimated offering expenses, based
on the assumed initial public offering price of $18.50 per share, are
estimated to be approximately $74.6 million ($85.3 million if the
underwriters' over-allotment option is exercised in full). The net proceeds
from this offering, together with the net proceeds from the preferred stock
offering, will be used as set forth below. Pending these uses, the net
proceeds from this offering may be temporarily invested in short-term,
interest-bearing, investment-grade securities. The following table sets forth
the estimated sources and uses of funds for the transactions described above
as of March 31, 1999:
<TABLE>
<CAPTION>
Amount
--------------
(in thousands)
<S> <C>
Sources:
Net proceeds from this offering......................... $ 74,600
Net proceeds from the preferred stock offering.......... 47,900
--------
Total sources......................................... $122,500
========
Uses:
Repayment of amounts borrowed under the bank credit
facility............................................... $ 72,000
Redemption of all of our existing preferred stock....... 27,700
Increase working capital and partially fund pending
acquisitions........................................... 18,900
Repayment of WYCB acquisition loan...................... 3,900
--------
Total uses............................................ $122,500
========
</TABLE>
Radio One will not receive any proceeds from class A common stock sold by
the selling stockholders.
DIVIDEND POLICY
We intend to retain future earnings for use in our business and do not
anticipate declaring or paying any cash or stock dividends on shares of our
common stock in the foreseeable future. In addition, any determination to
declare and pay dividends will be made by our board of directors in light of
our earnings, financial position, capital requirements, the bank credit
facility, the 12% notes indenture and the terms of the new preferred stock,
and such other factors as the board of directors deems relevant. See
"Description of Indebtedness" and "Description of Capital Stock."
12
<PAGE>
DILUTION
Purchasers of the class A common stock offered by this prospectus will
suffer an immediate and substantial dilution in net tangible book value per
share. Dilution is the amount by which the initial public offering price paid
by the purchasers of the shares of class A common stock will exceed the net
tangible book value per share of common stock after the offering. The net
tangible book value per share of common stock is determined by subtracting
total liabilities from the total book value of the tangible assets and dividing
the difference by the number of shares of common stock deemed to be outstanding
on the date the book value is determined. As of December 31, 1998, Radio One
had a pro forma negative tangible book value of $248.7 million or $19.63 per
share after giving effect to the completed and pending acquisitions and capital
transactions described under "Capitalization," excluding this offering.
Assuming the sale of 4,355,930 shares at an initial public offering price of
$18.50 per share and deducting underwriters' discounts and commissions and
estimated offering expenses, Radio One's pro forma tangible book value as of
December 31, 1998 would have been a negative $176.7 million or $10.38 per
share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $9.25 per share and an immediate dilution to
new investors of $28.88 per share. The following table illustrates this per
share dilution:
<TABLE>
<CAPTION>
Per
Share
-------
<S> <C> <C>
Assumed initial public offering price.................... $ 18.50
Pro forma net negative tangible book value before this
offering.............................................. $ (19.63)
Increase in net tangible book value per share
attributable to this offering......................... 9.25
--------
Pro forma net negative tangible book value after this
offering................................................ (10.38)
-------
Dilution to new investors................................ $ 28.88
=======
</TABLE>
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 1998, the number of shares of common stock purchased from Radio
One, the estimated value of the total consideration paid for or attributed to
such common stock, and the average price per share paid by or attributable to
existing stockholders and the new investors purchasing shares in this offering
at an assumed initial offering price of $18.50 per share.
<TABLE>
<CAPTION>
Average
Price
Per
Shares of Common Total Cash Share
Stock Purchased Consideration of
------------------ ------------------- Common
Number Percent Amount Percent Stock
---------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 12,669,989 74.4% $ 10,000 --% $ --
New investors.................... 4,355,930 25.6 80,600,000 100.0 18.50
---------- ----- ----------- -----
Total.......................... 17,025,919 100.0% $80,610,000 100.0% $4.73
========== ===== =========== =====
</TABLE>
As of , 1999 there were outstanding options to purchase an additional
shares of class A common stock at an exercise price of $ per share.
To the extent these options are exercised, there may be further dilution to new
investors.
13
<PAGE>
CAPITALIZATION
The table below sets forth our capitalization as of December 31, 1998, on an
actual basis, on a pro forma basis giving effect to the acquisitions identified
in the first bullet below, and on a pro forma as adjusted basis giving effect
to those acquisitions and the transactions identified in the second bullet
below. The actual amounts give effect to the following 1999 capital
transactions as if they had occurred as of December 31, 1998: the 34,060 for
one stock split of common stock, the exchange of certain shares of class A
common stock for shares of class B and class C common stock, the issuance of
common stock upon the exercise of the warrants, and the issuance of common
stock to an employee.
. The column "Pro forma for Completed and Pending Transactions" gives
effect to the acquisition of:
-- Radio One of Atlanta, Inc. ("ROA");
-- Dogwood Communications, Inc. ("Dogwood") by ROA;
-- the assets of WFUN-FM in St. Louis;
-- WENZ-FM and WERE-AM in Cleveland;
-- WDYL-FM in Richmond ("Richmond I");
-- WKJS-FM and WSOJ-FM in Richmond ("Richmond II"); and
-- WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond ("Richmond III").
. The column "Pro Forma as Adjusted" gives effect to:
-- the above transactions;
-- this offering;
-- the offering of $50.0 million of % senior cumulative exchangeable
preferred stock due June 30, 2011 (the "new preferred stock");
-- the redemption of all of our existing preferred stock; and
-- the repayment of debt.
14
<PAGE>
The information in this table should be read in conjunction with "Use of
Proceeds," "Unaudited Pro Forma Consolidated Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------
Pro Forma
for
Completed
and Pending Pro Forma
Actual Transactions as Adjusted
--------- ------------ -----------
(audited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 4,455 (82,734) $ 2,000
======== ======== ========
Long-term debt (including current
portion):
Bank credit facility................. $ 49,350 $ 65,787 $ 59,046
12% senior subordinated notes due May
15, 2004............................ 78,458 78,458 78,458
WYCB acquisition debt................ 3,841 3,841 --
Other long-term debt................. 90 90 90
-------- -------- --------
Total debt......................... 131,739 148,176 137,594
-------- -------- --------
Senior cumulative redeemable preferred
stock:
Series A, $0.01 par value, 140,000
shares authorized,
84,843 shares, 84,843 shares, and no
shares issued and outstanding....... 10,816 10,816 --
Series B, $0.01 par value, 150,000
shares authorized,
124,467 shares, 124,467 shares, and
no shares issued and outstanding.... 15,868 15,868 --
New preferred stock, $0.01 par value,
90,000 shares authorized, no shares,
no shares and 50,000 shares issued
and outstanding..................... -- -- 50,000
-------- -------- --------
Stockholders' equity (deficit):
Class A common stock, $0.01 par
value, 30,000,000 shares authorized,
33,716 shares, 6,601,841 shares and
10,957,771 shares issued and
outstanding, respectively........... -- 66 110
Class B common stock, $0.01 par
value, 30,000,000 shares authorized,
1,560,969 shares, 2,873,084 shares
and 2,873,084 shares issued and
outstanding, respectively........... 16 29 29
Class C common stock, $0.01 par
value, 30,000,000 shares authorized,
3,120,915 shares, 3,195,064 shares
and 3,195,064 shares issued and
outstanding, respectively........... 31 32 32
Additional paid-in capital........... -- 33,155 105,111
Accumulated deficit.................. (24,906) (24,906) (24,906)
-------- -------- --------
Total stockholders' equity
(deficit)......................... (24,859) 8,376 80,376
-------- -------- --------
Total capitalization............. $133,564 $183,236 $267,970
======== ======== ========
</TABLE>
15
<PAGE>
RECENT AND PENDING TRANSACTIONS
ACQUISITIONS
We have acquired or agreed to acquire 17 radio stations since January 1,
1998. These acquisitions diversify our net broadcast revenue, broadcast cash
flow and asset bases and increase the number of top 20 African-American markets
in which we operate from three to eight. See "Business" for a more detailed
description of the following transactions.
The table below sets forth information regarding each of the recently
completed or pending acquisitions as of March 31, 1999.
<TABLE>
<CAPTION>
No. of Approximate Date
Market Stations Call Letters Purchase Price Completed
------ -------- ------------ -------------- ---------
(in millions)
<S> <C> <C> <C> <C>
Completed Transactions
Washington, D.C.
(Broadcast Holdings,
Inc.)................... 1 WYCB-AM $ 3.8 3/98
Detroit/Kingsley (Bell
Broadcasting Company)... 3 WDTJ-FM 34.2 6/98
WCHB-AM
WJZZ-AM
Detroit (Allur-Detroit,
Inc.)................... 1 WWBR-FM 26.5 12/98
Atlanta (ROA and
Dogwood)................ 2 WHTA-FM (1) 3/99
WAMJ-FM
--- ------
Subtotal................. 7 64.5(/2/)
--- ------
Pending Transactions
St. Louis................ 1 WFUN-FM 13.6 --
Cleveland................ 2 WENZ-FM 20.0 --
WERE-AM
Richmond I............... 1 WDYL-FM 4.6 --
Richmond II.............. 2 WKJS-FM 12.0 --
WSOJ-FM
Richmond III............. 4 WJRV-FM 34.0 --
WCDX-FM
WPLZ-FM
WGCV-AM
--- ------
Subtotal................. 10 84.2
--- ------
Total.................... 17 $148.7(/2/)
=== ======
</TABLE>
- --------
(1) Radio One issued approximately 3.3 million shares of our common stock and
assumed approximately $16.3 million of debt in this transaction.
(2) Excludes ROA and Dogwood.
Completed Transactions
Washington, D.C.--WYCB-AM Acquisition
On March, 16, 1998, Radio One acquired, through an Unrestricted Subsidiary,
Broadcast Holdings, Inc. ("BHI"), the owner of WYCB-AM, for approximately $3.8
million. Following this acquisition, we integrated the operations of WYCB-AM
into our existing radio station operations in Washington, D.C.
Detroit--Bell Broadcasting Acquisition
On June 30, 1998, Radio One acquired Bell Broadcasting Company ("Bell
Broadcasting") for approximately $34.2 million in cash. Bell Broadcasting owns
three radio stations, WDTJ-FM (formerly WCHB-FM) and WCHB-AM, located in the
Detroit, Michigan market, and WJZZ-AM, located in Kingsley, Michigan.
16
<PAGE>
Detroit--Allur-Detroit Acquisition
On December 28, 1998, Radio One acquired Allur-Detroit, Inc. ("Allur-
Detroit"), owner of WWBR-FM, for approximately $26.5 million in cash. Allur-
Detroit's stockholders included Syndicated Communications Venture Partners II,
L.P. ("Syncom Venture Partners"), which is an affiliate of one of Radio One's
stockholders, Syncom Capital Corporation ("Syncom").
Atlanta--Radio One of Atlanta and Dogwood Communications Acquisitions
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA acquired the remaining approximate 67% of Dogwood for $3.6 million.
Founded in 1995, ROA owns and operates WHTA-FM. Dogwood owns WAMJ-FM which,
prior to ROA's acquisition of 100% of Dogwood, ROA operated under a local
marketing agreement ("LMA"). Upon the completion of these acquisitions, ROA
became a wholly owned subsidiary of Radio One, and Dogwood became a wholly
owned subsidiary of ROA. See "Certain Relationships and Related Transactions."
Pending Transactions
St. Louis--WFUN-FM Acquisition
On November 23, 1998, Radio One entered into an asset purchase agreement to
acquire the assets of WFUN-FM, licensed to Bethalto, Illinois, for
approximately $13.6 million in cash. We expect to move WFUN-FM to a broadcast
tower site closer to downtown St. Louis, reformat the station and upgrade its
signal from 6 kW to 25 kW. We expect this acquisition to close during the
second quarter of 1999.
Cleveland--WENZ-FM and WERE-AM Acquisition
On March 29, 1999, Radio One entered into an asset purchase agreement to
acquire WENZ-FM and WERE-AM, both of which are licensed to Cleveland, Ohio, for
approximately $20.0 million in cash. We expect this acquisition to close by the
end of the third quarter of 1999.
Richmond--WDYL-FM Acquisition, WKJS-FM and WSOJ-FM Acquisition and WJRV-FM,
WCDX-FM, WPLZ-FM and WGCV-AM Acquisition
On February 10, 1999, Radio One entered into an asset purchase agreement to
acquire WDYL-FM, licensed to Chester, Virginia, for approximately $4.6 million
in cash. We expect this acquisition to close by the end of the third quarter of
1999.
On February 26, 1999, Radio One entered into an asset purchase agreement to
acquire WKJS-FM, licensed to Crewe, Virginia, and WSOJ-FM, licensed to
Petersburg, Virginia, for approximately $12.0 million in cash, subject to
purchase price adjustments. We expect this acquisition to close in the third
quarter of 1999.
Pursuant to a letter of intent dated February 23, 1999, on April , 1999,
Radio One entered into an asset purchase agreement to acquire WCDX-FM, licensed
to Mechanicsville, Virginia, WPLZ-FM, licensed to Petersburg, Virginia, WJRV-
FM, licensed to Richmond, Virginia, and WGCV-AM, licensed to Petersburg,
Virginia, for approximately $34.0 million in cash. We expect to operate these
stations under an LMA beginning in June 1999 and to complete the acquisition no
later than the second half of 2000.
FINANCINGS
Preferred Stock Offering and Redemption
Concurrent with this offering, we intend to sell $50.0 million of % new
preferred stock. The preferred stock offering is being made by a separate
prospectus. We intend to use the proceeds of the preferred stock
17
<PAGE>
offering to redeem all of our existing preferred stock, to partially fund
pending acquisitions and to repay amounts borrowed to fund our acquisition of
WYCB-AM in Washington, D.C. See "Use of Proceeds" and "Description of Capital
Stock."
Credit Agreement
On February 26, 1999, we entered into an amended and restated credit
agreement under which we may borrow up to $100 million on a revolving basis
from a group of banking institutions, subject to financial ratio restrictions.
See "Description of Indebtedness."
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements (the
"Pro Forma Consolidated Financial Statements") are based on the historical
Consolidated Financial Statements of Radio One included elsewhere in this
prospectus, adjusted to give effect to the following:
The pro forma amounts for the year ended December 31, 1998, in the column
"Completed Transactions" are adjusted to give effect to the following completed
acquisitions as if they had occurred as of January 1, 1998:
. Bell Broadcasting;
. Allur-Detroit;
. ROA; and
. Dogwood by ROA.
The pro forma amounts for the year ended December 31, 1998, in the column
"Completed and Pending Transactions" are adjusted to give effect to the
completed transactions described above and to the following pending
acquisitions as if they had occurred as of January 1, 1998:
. the assets of WFUN-FM in St. Louis (pro forma balance sheet only);
. WENZ-FM and WERE-AM in Cleveland;
. WDYL-FM in Richmond;
. WKJS-FM and WSOJ-FM in Richmond; and
. WJRV-FM, WCDX-FM, WPLZ-FM and WGCV-AM in Richmond.
The pro forma amounts in the column "As Adjusted" are further adjusted to
give effect to the pending and completed transactions described above and to
the following transactions as if they had occurred as of January 1, 1998:
. this offering;
. the redemption of all of our existing preferred stock;
. the preferred stock offering; and
. the repayment of debt.
The pro forma balance sheet data are adjusted to give effect to the
transactions described above as if they had occurred on December 31, 1998.
The Unaudited Pro Forma Consolidated Statements of Operations and Other Data
gives effect to these transactions as if they had occurred as of January 1,
1998, and the Unaudited Pro Forma Consolidated Balance Sheet gives effect to
these transactions as if they had occurred as of December 31, 1998. These
transactions are described in the accompanying notes to the Pro Forma
Consolidated Financial Statements. The pro forma data are based upon available
information and certain assumptions that management believes are reasonable.
The Pro Forma Consolidated Financial Statements do not purport to represent
what Radio One's results of operations or financial condition would actually
have been had these transactions occurred on the dates indicated or to project
Radio One's results of operations or financial condition for any future period
or date. The Pro Forma Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements of Radio One and the
historical consolidated financial statements of ROA, Bell Broadcasting, Allur-
Detroit, Richmond II and Richmond III included elsewhere in this prospectus,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pending acquisitions of the assets of WFUN-FM in St. Louis, and the
operations of the stations in Cleveland and Richmond, will be accounted for
using the purchase method of accounting. After an acquisition, the total
consideration of such acquisition will be allocated to the tangible and
intangible assets acquired and liabilities assumed, if any, based upon their
respective estimated fair values. The allocation of the aggregate
19
<PAGE>
total consideration included in the Pro Forma Consolidated Financial Statements
is preliminary as we believe further refinement is impractical at this time.
However, we do not expect that the final allocation of the total consideration
will materially differ from the preliminary allocations.
Unaudited Pro Forma Consolidated Statement of Operations and Other Data
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------------------------------------------
(in thousands)
Pro Forma
Completed Pro Forma Pending for Completed Pro Forma
Transactions for Completed Transactions and Pending Offerings as
Historical(a) Adjustments(b) Transactions Adjustments(c) Transactions Adjustments Adjusted
------------- -------------- ------------- -------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $46,109 $14,719 $60,828 $12,215 $ 73,043 $ -- $ 73,043
Station operating
expenses............... 24,501 9,617 34,118 8,017 42,135 -- 42,135
Corporate expenses...... 2,800 413 3,213 -- 3,213 -- 3,213
Depreciation and
amortization........... 8,445 7,125 15,570 5,340 20,910 -- 20,910
------- ------- ------- ------- -------- ------ --------
Operating income....... 10,363 (2,436) 7,927 (1,142) 6,785 6,785
Interest expense........ 11,455 5,148 16,603 5,613 22,216 (7,578)(d) 14,638
Other income (expense),
net.................... 358 (29) 329 122 451 451
Income tax benefit
(expense).............. 1,575 905 2,480 2,450 4,930 (2,870)(e) 2,060
------- ------- ------- ------- -------- ------ --------
Net income (loss)...... $ 841 $(6,708) $(5,867) $(4,183) $(10,050) $4,708 $ (5,342)
======= ======= ======= ======= ======== ====== ========
Net loss applicable to
common stockholders.... $(2,875) $(9,583) $(13,766) $(11,128)
======= ======= ======== ========
Earnings per common
share:
Basic and diluted...... $ (.31) $ (.76) $ (1.09) $ (.65)
Weighted average common
shares outstanding:
Basic and diluted...... 9,392 12,670 12,670 17,026
Other Data:
Broadcast cash flow(f).. $21,608 $26,710 $ 30,908 $ 30,908
Broadcast cash flow
margin(g).............. 46.9% 43.9% 42.3% 42.3%
EBITDA (before non-cash
compensation
expense)(f)............ $18,808 $23,791 $ 27,989 $ 27,989
After-tax cash flow(f).. 7,248 7,517 6,224 13,802
Cash interest
expense(h)............. 7,192 12,731 18,344 10,766
Accreted preferred stock
dividends.............. 3,716 3,716 3,716 5,786 (i)
Capital expenditures.... 2,236 3,921 4,534 4,534
Ratio of earnings to combined fixed charges and preferred stock dividends(j)................................. 0.4x
Ratio of total debt to EBITDA (combined expense and preferred stock dividend)................................ 4.9x
Ratio of EBITDA (before non-cash compensation expense) to interest expense................................... 1.9x
Ratio of EBITDA (before non-cash compensation expense) to cash interest expense.............................. 2.6x
</TABLE>
Footnotes for the Unaudited Pro Forma Consolidated Statement of Operations and
Other Data for the Year Ended December 31, 1998
(a) See the consolidated financial statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisitions completed during the
period from January 1, 1998 through March 31, 1999 as if they had occurred
on January 1, 1998:
<TABLE>
<CAPTION>
Bell
Broadcasting Allur-Detroit ROA Pro Forma
Historical(/1/) Historical(/2/) Historical(/3/) Adjustments Total
--------------- --------------- --------------- ----------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $2,025 $ 2,854 $10,140 $ (300)(/4/) $14,719
Station operating
expenses............... 1,423 3,239 5,529 (574)(/5/) 9,617
Corporate expenses...... 663 336 667 (1,253)(/6/) 413
Depreciation and
amortization........... 63 194 896 5,972 (/7/) 7,125
------ ------- ------- ------- -------
Operating income
(loss)............... (124) (915) 3,048 (4,445) (2,436)
Interest expense........ 52 383 2,007 2,706 (/8/) 5,148
Other income (expense),
net.................... (28) (50) 7 42 (/9/) (29)
Income tax benefit
(expense).............. (14) -- (499) 1,418 (/10/) 905
------ ------- ------- ------- -------
Net income (loss)..... $ (218) $(1,348) $ 549 $(5,691) $(6,708)
====== ======= ======= ======= =======
</TABLE>
20
<PAGE>
- --------
(/1/See)the unaudited financial statements of Bell Broadcasting for the six
months ended June 30, 1998, included elsewhere in this prospectus, which is
the period during 1998 that Bell Broadcasting was not owned by Radio One.
(/2/Derived)from the unaudited financial statements of Allur-Detroit for the
period from January 1, 1998 to December 28, 1998, which is the period
during 1998 that the entity was not owned by Radio One.
(/3/See)the consolidated financial statements of ROA included elsewhere in the
prospectus.
(/4/To)reflect the elimination of the management fee paid by ROA to Radio One
for administrative services provided by Radio One.
(/5/To)record compensation expense of $105 for a manager and a general manager
Radio One will need to hire to manage the Detroit market, eliminate bonuses
of $115 paid by Allur-Detroit to employees because of the sale, and
eliminate the salary, bonus and benefits of $564 paid to the previous
Allur-Detroit general manager who was not retained by Radio One.
(/6/To)eliminate corporate expenses which Radio One does not expect to incur
going forward which consist primarily of compensation of $617 to officers
and former owners of Bell Broadcasting who were not retained by Radio One,
the management fee of $300 paid by ROA to Radio One, and charitable
contributions and management fees of $336 paid by the former owners of
Allur-Detroit that would not have been distributed if the station had been
owned by Radio One.
(/7/To)record the additional depreciation and amortization expense that would
have been recognized if the Bell Broadcasting, Allur-Detroit, 20% of
Dogwood, and ROA acquisitions had occurred.
(/8/To)record interest expense on acquisition financing, calculated as follows:
<TABLE>
<S> <C>
Interest on Bell Broadcasting financing of $33,241 at 7.95% for
six months....................................................... $1,343
Amortization of Bell Broadcasting deferred financing costs of $651
over 5.5 years for six months.................................... 59
Less: Interest expense previously recorded by Bell Broadcasting... 52
Interest on Allur-Detroit purchase price of $26,500 at 7.95%...... 2,107
Amortization of Allur-Detroit deferred financing costs of $358
over 5 years..................................................... 72
Less: Interest expense previously recorded by Allur-Detroit....... 383
Interest on Dogwood purchase price of $3,500 at 7.95%............. 278
Interest on ROA's debt paid at the acquisition of $16,212 at
7.95%............................................................ 1,289
Less: Interest expense previously recorded by ROA................. 2,007
------
Pro forma adjustment............................................ $2,706
======
</TABLE>
(/9/To)eliminate tax penalties incurred by Bell Broadcasting that are not
expected to be incurred by Radio One on a going-forward basis.
(/10/To)record additional tax benefit related to additional loss as a result of
the acquisitions.
(c) The table below gives effect to the acquisitions pending as of March 31,
1999:
<TABLE>
<CAPTION>
Cleveland Richmond I Richmond II Richmond III Pro Forma
Historical(/1/) Historical(/1/) Historical(/2/) Historical(/2/) Adjustments(/3/) Total
--------------- --------------- --------------- --------------- ---------------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue... $3,295 $400 $1,062 $7,458 $ -- $12,215
Station operating
expenses............... 1,979 368 1,002 4,668 -- 8,017
Corporate expenses...... -- 14 15 413 (442)(/4/) --
Depreciation and
amortization........... 811 4 416 648 3,461 (/5/) 5,340
------ ---- ------ ------ ------- -------
Operating income
(loss)............... 505 14 (371) 1,729 (3,019) (1,142)
Interest expense........ 600 -- 500 -- 4,513 (/6/) 5,613
Other income (expense),
net.................... 101 -- 21 -- -- 122
Income tax benefit
(expense).............. (2) (6) -- -- 2,458 (/7/) 2,450
------ ---- ------ ------ ------- -------
Net income (loss)..... $ 4 $ 8 $ (850) $1,729 $(5,074) $(4,183)
====== ==== ====== ====== ======= =======
</TABLE>
- --------
(/1/The)column represents the historical results of operations of the stations
to be acquired for the year ended December 31, 1998. As these stations to
be acquired did not prepare stand-alone financial statements, these
financial statements were carved out from a larger entity and include the
direct revenue and expenses charged to the stations and an allocation of
those expenses which benefited the stations but were not directly charged
to the stations. As these results of operations include allocated expenses,
these financial statements do not represent what the results from
operations would have been if the stations operated on a stand-alone basis
or what they would have been if they were owned by Radio One.
21
<PAGE>
(/2/The)column represents the historical results of operations for the year
ended December 31, 1998 that were obtained from carveout audited financial
statements. See the financial statements included elsewhere in this
prospectus.
(/3/Historical)financial statements and pro forma adjustments related to the
St. Louis acquisition have not been included in this pro forma income
statement, because Radio One has determined that this acquisition is a
purchase of assets. Income statement activity would not be relevant,
because Radio One plans to take the current station off the air, reformat
the station, and move it to a new location.
(/4/To)eliminate corporate management fees which would not be incurred by Radio
One.
(/5/To)record additional amortization of $3,461 for intangibles related to the
excess purchase price of $66,733 over 15 years, less the amortization
previously recorded by the acquired companies.
(/6/To)record interest expense, calculated as follows:
<TABLE>
<S> <C>
Total acquisition cost for Cleveland and Richmond I, II and III
................................................................ $70,600
=======
Interest expense on total acquisition cost at 7.95% for one
year.......................................................... $ 5,613
Less: Interest expense previously recorded by acquired
companies....................................................... 1,100
-------
Pro forma adjustment........................................... $ 4,513
=======
</TABLE>
(/7/)To record additional tax benefit related to additional loss as a result of
the acquisitions.
(d) To record the decrease in interest expense related to the use of proceeds
of this offering and the preferred stock offering, calculated as follows:
<TABLE>
<S> <C>
Proceeds of this offering........................................ $80,600
Proceeds of the preferred stock offering......................... 50,000
-------
Total.......................................................... 130,600
Less: Retirement of preferred stock.............................. 26,684
Less: Underwriting discounts and commissions, and offering cost
expenses........................................................ 8,600
-------
Subtotal....................................................... $95,316
=======
Pro forma adjustment............................................. $ 7,578
=======
</TABLE>
(e) To record the tax effect of the reduction in interest expense.
(f) Broadcast cash flow consists of operating income before depreciation,
amortization, local marketing agreement fees and corporate expenses. EBITDA
(before non-cash compensation expense) consists of operating income before
depreciation, amortization, non-cash compensation expense and local
marketing agreement fees. After-tax cash flow consists of income before
income tax benefit (expense) and extraordinary items, minus net gain on
sale of assets (net of tax) and the current income tax provision, plus
depreciation and amortization expense and non-cash compensation expense.
Although broadcast cash flow, EBITDA (before non-cash compensation
expense), and after-tax cash flow are not measures of performance or
liquidity calculated in accordance with GAAP, we believe that these
measures are useful to an investor in evaluating Radio One because these
measures are widely used in the broadcast industry as a measure of a radio
broadcasting company's performance. Nevertheless, broadcast cash flow,
EBITDA (before non-cash compensation expense) and after-tax cash flow
should not be considered in isolation from or as a substitute for net
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Moreover, because broadcast cash flow, EBITDA
(before non-cash compensation expense) and after-tax cash flow are not
measures calculated in accordance with GAAP, these performance measures are
not necessarily comparable to similarly titled measures employed by other
companies.
(g) Broadcast cash flow margin is defined as broadcast cash flow divided by net
broadcast revenue.
(h) Cash interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for the
indicated period.
22
<PAGE>
(i) The accreted preferred stock dividend is calculated based on an assumed
rate of 11%.
(j) For purposes of this calculation, earnings consist of income (loss) before
income taxes, extraordinary items and fixed charges without including any
activities relating to the acquisition of WYCB-AM, an Unrestricted
Subsidiary. Fixed charges consist of interest expense, including the
amortization of discounts on debt and the amortization of deferred
financing costs. Earnings were insufficient to cover combined fixed charges
and preferred stock dividends for the fiscal year ended December 31, 1998,
by approximately $4.5 million and on a pro forma as adjusted basis for the
year ended December 31, 1998, by approximately $13.2 million.
23
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------------------------------------------
Pro Forma for
Completed Pro Forma for Pending Completed
Transactions Completed Transactions and Pending Offerings Pro Forma
Historical (a) Adjustments (b) Transactions Adjustments (c) Transactions Adjustments as Adjusted
-------------- --------------- ------------- --------------- ------------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 4,455 $(2,989) $ 1,466 $(84,200) $(82,734) $84,734 (d) $ 2,000
Trade accounts
receivable, net..... 12,026 2,479 14,505 703 15,208 -- 15,208
Prepaid expenses and
other............... 334 202 536 31 567 -- 567
Deferred taxes....... 826 164 990 -- 990 -- 990
-------- ------- -------- -------- -------- ------- --------
Total current
assets............ 17,641 (144) 17,497 (83,466) (65,969) 84,734 18,765
Property and
equipment, net....... 6,717 1,758 8,475 3,133 11,608 -- 11,608
Intangible assets,
net.................. 127,639 49,147 176,786 80,333 257,119 -- 257,119
Deferred taxes........ -- 60 60 -- 60 -- 60
Other assets.......... 1,859 40 1,899 -- 1,899 -- 1,899
-------- ------- -------- -------- -------- ------- --------
Total assets....... $153,856 $50,861 $204,717 $ -- $204,717 $84,734 $289,451
======== ======= ======== ======== ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses.... $ 4,898 $ 1,189 $ 6,087 $ -- $ 6,087 $ -- $ 6,087
Income taxes
payable............. 143 -- 143 -- 143 -- 143
-------- ------- -------- -------- -------- ------- --------
Total current
liabilities....... 5,041 1,189 6,230 -- 6,230 -- 6,230
Bank credit facility.. 49,350 16,437 65,787 -- 65,787 (6,741)(e) 59,046
12% notes due 2004.... 78,458 -- 78,458 -- 78,458 -- 78,458
WYCB acquisition
debt................. 3,841 -- 3,841 -- 3,841 (3,841)(e) --
Other long-term debt.. 90 -- 90 -- 90 -- 90
Deferred tax
liability............ 15,251 -- 15,251 -- 15,251 -- 15,251
-------- ------- -------- -------- -------- ------- --------
Total liabilities.. 152,031 17,626 169,657 -- 169,657 (10,582) 159,075
-------- ------- -------- -------- -------- ------- --------
Existing preferred
stock:
Series A............. 10,816 -- 10,816 -- 10,816 (10,816)(f) --
Series B............. 15,868 -- 15,868 -- 15,868 (15,868)(f) --
New preferred
stock............... -- -- -- -- -- 50,000 (f) 50,000
-------- ------- -------- -------- -------- ------- --------
26,684 -- 26,684 -- 26,684 23,316 50,000
-------- ------- -------- -------- -------- ------- --------
Stockholders' equity
(deficit):
Class A common
stock............... -- 66 66 -- 66 44 (g) 110
Class B common
stock............... 16 13 29 -- 29 29
Class C common
stock............... 31 1 32 -- 32 32
Additional paid in
capital............. -- 33,155 33,155 -- 33,155 71,956 (g) 105,111
Accumulated
deficit............. (24,906) -- (24,906) -- (24,906) -- (24,906)
-------- ------- -------- -------- -------- ------- --------
Total stockholders'
equity (deficit).. (24,859) 33,235 8,376 -- 8,376 72,000 80,376
-------- ------- -------- -------- -------- ------- --------
Total liabilities
and stockholders'
equity (deficit).. $153,856 $50,861 $204,717 $ -- $204,717 $84,734 $289,451
======== ======= ======== ======== ======== ======= ========
</TABLE>
24
<PAGE>
Footnotes for the Unaudited Pro Forma Consolidated Balance Sheet as of December
31, 1998
(a) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(b) The table below gives effect to the acquisition of ROA, the retirement of
ROA's outstanding debt, the purchase of the remaining 20% of Dogwood and
the issuance of common stock related to the exercise of warrants and the
grant of common stock to an employee.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------
ROA Pro Forma
Historical(/1/) Adjustments Total
--------------- ----------- -------
(in thousands)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents....... $ 1,711 $(4,700)(/2/) $(2,989)
Trade accounts receivable, net.. 2,479 -- 2,479
Prepaid expenses and other...... 202 -- 202
Deferred taxes.................. 164 -- 164
------- ------- -------
Total current assets.......... 4,556 (4,700) (144)
Property and equipment, net....... 1,758 -- 1,758
Intangible assets, net............ 10,867 38,280 (/3/) 49,147
Deferred taxes.................... 60 -- 60
Other assets...................... 40 -- 40
------- ------- -------
Total assets.................. $17,281 $33,580 $50,861
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Account payable and accrued
expenses....................... $ 1,189 $ -- $ 1,189
Current portion of long-term
debt........................... 327 (327)(/4/) --
------- ------- -------
Total current liabilities..... 1,516 (327) 1,189
Long-term debt and deferred
interest......................... 15,525 912 (/4/) 16,437
------- ------- -------
Total liabilities............. 17,041 585 17,626
------- ------- -------
Stockholders' Equity (Deficit):
Common stock.................... 10 70 (/5/) 80
Additional paid in capital...... 1,390 31,765 (/5/) 33,155
Accumulated earnings (deficit).. (1,160) 1,160 (/5/) --
------- ------- -------
Total stockholders' equity ... 240 32,995 33,235
------- ------- -------
Total liabilities and
stockholders' equity ........ $17,281 $33,580 $50,861
======= ======= =======
</TABLE>
- --------
(1) See the Consolidated Financial Statements included elsewhere in this
prospectus.
(2) To reflect the $3,500 payment for the remaining 20% interest in Dogwood and
a $1,200 fee paid by ROA to a stockholder for arranging the acquisition.
(3) To reflect the acquisition of the remaining 20% interest in Dogwood for
$3,500 and the step up of the assets from the acquisition of ROA. Radio One
applied step up accounting to the portion of ROA owned by non-Radio One
stockholders and non-controlling stockholders of ROA. The portion of ROA
owned by the controlling stockholder of ROA and stockholder of Radio One
was accounted for based on historical cost. The valuation of ROA for
purposes of the step-up adjustment was based on Radio One's estimate of
ROA's value as of the date the parties agreed in principle to the
acquisition.
(4) To record the refinancing of ROA's outstanding debt of $15,852 plus
unamortized discount of $360 and deferred financing costs of $225 related
to the bank credit facility.
(5) To eliminate the stockholders' equity accounts of ROA, reflect the Radio
One common stock issued as part of the acquisition, record the increase to
additional paid in capital for the step up of the assets related to the ROA
acquisition, reduce net equity for the write-off of the unamortized
discount and deferred financing costs on ROA's debt and to record a $1,200
fee paid by ROA to a stockholder for arranging the acquisition. This
adjustment also includes the issuance of common stock upon the exercise of
warrants and the grant of common stock to an employee.
25
<PAGE>
(c) The table below gives effect to the pending transactions as of March 31,
1999 as if they had occurred on December 31, 1998.
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------------------------------------------------------
Cleveland Richmond I Richmond II Richmond III St. Louis Acquisitions
Historical(/1/) Historical(/1/) Historical(/3/) Historical(/3/) Historical(/2/) Adjustments Total
--------------- --------------- --------------- --------------- --------------- ------------ --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents...... $ -- $ -- $ 34 $ 142 $ -- $(84,376)(/4/) $(84,200)
Trade accounts
receivable,
net.............. 315 62 326 1,400 -- (1,400)(/5/) 703
Prepaid expenses
and other........ -- -- -- 31 -- -- 31
------ ----- ------ ------ ------ -------- --------
Total current
assets......... 315 62 360 1,573 -- (85,776) (83,466)
Property and
equipment, net.... 825 27 1,079 1,202 -- -- 3,133
Intangible assets,
net............... 4,788 -- 3,343 3,692 -- 68,510 (/6/) 80,333
Other assets....... -- -- -- -- -- -- --
Deferred taxes..... -- -- -- -- -- --
------ ----- ------ ------ ------ -------- --------
Total assets.... $5,928 $ 89 $4,782 $6,467 $ -- $(17,266) $ --
====== ===== ====== ====== ====== ======== ========
LIABILITIES AND
STATION EQUITY
Current
Liabilities:
Accounts payable
and accrued
expenses......... $ -- $ -- $ 168 $ 566 $ -- $ (734)(/7/) $ --
Current portion
of long-term
debt............. -- -- 13 -- -- (13)(/7/) --
------ ----- ------ ------ ------ -------- --------
Total current
liabilities.... -- -- 181 566 -- (747)(/7/) --
Long-term debt and
deferred
interest.......... -- -- 5,049 -- -- (5,049)(/7/) --
------ ----- ------ ------ ------ -------- --------
Total
liabilities.... -- -- 5,230 566 -- (5,796) --
Station equity
(deficit)......... 5,928 89 (448) 5,901 -- (11,470)(/8/) --
------ ----- ------ ------ ------ -------- --------
Total
liabilities and
station equity
(deficit)...... $5,928 $ 89 $4,782 $6,467 $ -- $(17,266) $ --
====== ===== ====== ====== ====== ======== ========
</TABLE>
- --------
(1) The column represents the historical balance sheet of the stations
acquired. As the stations acquired did not prepare stand-alone financial
statements, these financial statements were carved out from a larger entity
and include the assets and liabilities of the stations to be acquired.
(2) Historical financial statements related to the St. Louis acquisition have
not been included in this pro forma balance sheet because Radio One has
determined that this acquisition is a purchase of the license only.
(3) See Financial Statements included elsewhere in this prospectus.
(4) To reflect the cash paid by Radio One of $84,200 for the St. Louis,
Cleveland and Richmond I, II and III acquisitions and to reflect cash not
assumed from acquired companies.
(5) To eliminate the trade accounts receivable not purchased in the Richmond
III acquisition.
(6) To record intangible assets booked as a result of the acquisitions,
calculated as follows:
<TABLE>
<CAPTION>
Net Tangible
Purchase Assets Intangibles
Price Acquired Acquired
-------- ------------ -----------
<S> <C> <C> <C>
Total.................................... $84,200 $3,867 $80,333
Less: Intangibles recorded on historical books................. 11,823
-------
Pro forma adjustment......................................... $68,510
=======
</TABLE>
(7) To eliminate accounts payable, accrued expenses and debt that will not be
assumed by Radio One.
(8) To eliminate the station equity from the entities acquired.
(d) To reflect the net proceeds of this offering at an assumed public offering
price of $18.50 per share and to reflect the preferred stock offering less
underwriting discounts and commissions, offering expenses of $8,600,
redemption of the existing preferred stock and retirement of debt.
26
<PAGE>
(e) To reflect the retirement of debt with the proceeds from this offering.
(f) To reflect proceeds of $50,000 from the preferred stock offering, and the
redemption of the existing preferred stock.
(g) To reflect the net proceeds of this offering assuming the sale of 4,355,930
shares of common stock at an estimated offering price of $18.50 per share,
less underwriting discounts, commissions and offering costs of $8,600 for
this offering and the preferred stock offering.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table contains selected historical consolidated financial data
with respect to Radio One. The selected historical consolidated financial data
have been derived from the Consolidated Financial Statements of Radio One for
each of the fiscal years for the five year period ended December 31, 1998,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected historical consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of Radio
One included elsewhere in this prospectus.
The following table includes information regarding broadcast cash flow,
EBITDA, and after-tax cash flow. Broadcast cash flow consists of operating
income before depreciation, amortization, local marketing agreement fees and
corporate expenses. EBITDA consists of operating income before depreciation,
amortization, and local marketing agreement fees. After-tax cash flow consists
of income before income tax benefit (expense) and extraordinary items, minus
net gain on sale of assets (net of tax) and the current income tax provision,
plus depreciation and amortization expense. Although broadcast cash flow,
EBITDA, and after-tax cash flow are not measures of performance or liquidity
calculated in accordance with GAAP, we believe that these measures are useful
to an investor in evaluating Radio One because these measures are widely used
in the broadcast industry as a measure of a radio broadcasting company's
performance. Nevertheless, broadcast cash flow, EBITDA and after-tax cash flow
should not be considered in isolation from or as a substitute for net income,
cash flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability or
liquidity. Moreover, because broadcast cash flow, EBITDA and after-tax cash
flow are not measures calculated in accordance with GAAP, these performance
measures are not necessarily comparable to similarly titled measures employed
by other companies.
28
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended(/1/)
-----------------------------------------------
Dec. December 31,
25, --------------------------------------
1994 1995 1996 1997 1998
------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Net broadcast revenue......... $15,541 $ 21,455 $ 23,702 $ 32,367 $ 46,109
Station operating expenses.... 8,506 11,736 13,927 18,848 24,501
Corporate expenses............ 1,128 1,995 1,793 2,155 2,800
Depreciation and
amortization................. 2,027 3,912 4,262 5,828 8,445
------- -------- -------- -------- --------
Operating income............ 3,880 3,812 3,720 5,536 10,363
Interest expense(/2/)......... 2,665 5,289 7,252 8,910 11,455
Other income (expense), net... 38 89 (77) 415 358
Income tax benefit
(expense)(/3/)............... (30) -- -- -- 1,575
------- -------- -------- -------- --------
Income (loss) before
extraordinary item......... 1,223 (1,388) (3,609) (2,959) 841
Extraordinary loss............ -- 468 -- 1,985 --
------- -------- -------- -------- --------
Net income (loss)........... $ 1,223 $ (1,856) $ (3,609) $ (4,944) $ 841
======= ======== ======== ======== ========
Net income (loss) applicable
to common stockholders....... $ 1,223 $ (1,856) $ (3,609) $ (6,981) $ (2,875)
======= ======== ======== ======== ========
Earnings per common
share:(/4/)
Basic and diluted........... $ .16 $ (.22) $ (.38) $ (.74) $ (.31)
Weighted average common shares
outstanding:(/4/)
Basic and diluted........... 7,435 8,413 9,392 9,392 9,392
Other Data:
Broadcast cash flow........... $ 7,035 $ 9,719 $ 9,775 $ 13,519 $ 21,608
Broadcast cash flow
margin(/5/).................. 45.3% 45.3% 41.2% 41.8% 46.9%
EBITDA (before non-cash
compensation)................ $ 5,907 $ 7,724 $ 7,982 $ 11,364 $ 18,808
After-tax cash flow........... 2,763 2,524 806 2,869 7,248
Cash interest expense(/6/).... 2,356 5,103 4,815 4,413 7,192
Accreted preferrered stock
dividends.................... -- -- -- 2,037 3,716
Capital expenditures.......... 639 224 252 2,035 2,236
Ratio of earnings to combined
fixed charges and preferred
stock dividends(/7/)......... 1.45x -- -- -- --
Balance Sheet Data (at period
end):
Cash and cash equivalents........................................ $ 4,455
Intangible assets, net........................................... 127,639
Total assets..................................................... 153,856
Total debt (including current portion and deferred interest)..... 131,739
Preferred stock.................................................. 26,684
Total stockholders' deficit...................................... 24,859
</TABLE>
- --------
(/1/Year-to-year)comparisons are significantly affected by Radio One's
acquisition of various radio stations during the periods covered. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Prior to the fiscal year ended December 31, 1996, Radio One's
accounting reporting period was based on a fifty-two/fifty-three week
period ending on the last Sunday of the calendar year. During 1996, we
changed our fiscal year end to December 31.
(/2/Interest)expense includes non-cash interest, such as the accretion of
principal, the amortization of discounts on debt and the amortization of
deferred financing costs.
(/3/From)January 1, 1996 to May 19, 1997, Radio One elected to be treated as an
S corporation for U.S. federal and state income tax purposes and,
therefore, generally was not subject to income tax at the corporate level
during that period.
(/4/Assumes)a 34,060 for one stock split, the exercise of warrants and issuance
of common stock to an employee were effective for all periods presented.
(/5/Broadcast)cash flow margin is defined as broadcast cash flow divided by net
broadcast revenue.
(/6/Cash)interest expense is calculated as interest expense less non-cash
interest, including the accretion of principal, the amortization of
discounts on debt and the amortization of deferred financing costs, for the
indicated period.
(/7/Earnings)were insufficient to cover combined fixed charges for the fiscal
years ended December 31, 1995, 1996, 1997, and 1998 by approximately $1.4
million, $3.6 million, $5.0 million and $4.5 million, respectively. To
date, we have not paid any dividend on our existing preferred stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Financial Statements and the
notes thereto included elsewhere in this prospectus.
Introduction
The net broadcast revenue of Radio One is derived from local and national
advertisers and, to a much lesser extent, ticket and other revenue related to
special events sponsored by Radio One throughout the year. Our significant
broadcast expenses are employee salaries and commissions, programming expenses,
advertising and promotion expenses, rental of premises for studios and rental
of transmission tower space and music license royalty fees. We strive to
control these expenses by centralizing certain functions such as finance,
accounting, legal, human resources and management information systems and the
overall programming management function, as well as using our multiple
stations, market presence and purchasing power to negotiate favorable rates
with certain vendors and national representative selling agencies. Depreciation
and amortization of costs associated with the acquisition of the stations and
interest carrying charges are significant factors in determining Radio One's
overall profitability.
Radio One's net broadcast revenue is affected primarily by the advertising
rates our radio stations are able to charge as well as the overall demand for
radio advertising time in a market. Advertising rates are based primarily on
(1) a radio station's audience share in the demographic groups targeted by
advertisers, as measured principally by quarterly reports developed by
Arbitron, (2) the number of radio stations in the market competing for the same
demographic groups, and (3) the supply of and demand for radio advertising
time. Advertising rates are generally highest during morning and afternoon
commuting hours. In 1998, approximately 67.4% of Radio One's revenue was
generated from local advertising and 30.3% was generated from national spot
advertising. The balance of 1998 revenue was generated primarily from network
advertising, tower rental income and ticket and other revenue related to Radio
One sponsored events.
The performance of an individual radio station or group of radio stations in
a particular market is customarily measured by its ability to generate net
broadcast revenue and broadcast cash flow, although broadcast cash flow is not
a measure utilized under GAAP. Broadcast cash flow should not be considered in
isolation from, nor as a substitute for, operating income, net income, cash
flow, or other consolidated income or cash flow statement data computed in
accordance with GAAP, nor as a measure of Radio One's profitability or
liquidity. Despite its limitations, broadcast cash flow is widely used in the
broadcasting industry as a measure of a company's operating performance because
it provides a meaningful measure of comparative radio station performance,
without regard to items such as depreciation and amortization, which can vary
depending upon accounting methods and the book value of assets, particularly in
the case of acquisitions, and corporate expenses.
Radio One's operating results in any period may be affected by advertising
and promotion expenses that do not produce commensurate net broadcast revenue
in the period in which such expenses are incurred. We generally incur
advertising and promotion expenses in order to increase listenership and
Arbitron ratings. Increased advertising revenue may wholly or partially lag
behind the incurrence of such advertising and promotion expenses because
Arbitron only reports complete ratings information on a quarterly basis.
In the broadcasting industry, radio stations often utilize trade or barter
agreements to reduce expenses by exchanging advertising time for goods or
services. In order to maximize cash revenue from our spot inventory, we
minimize the use of trade agreements and have reduced trade revenue to
approximately 1.2% of our gross revenue in 1998, down from approximately 4.2%
in 1996.
Radio One calculates same station growth over a particular period by
comparing performance of stations owned or operated under an LMA during the
current period with the performance of the same stations for the
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corresponding period in the prior year. However, no station will be included in
such a comparison unless it has been owned or operated under an LMA for at
least one month of every quarter included in each of the current and
corresponding prior-year periods.
From January 1, 1996, to December 31, 1998, Radio One acquired six radio
stations. On May 19, 1997, Radio One acquired WPHI-FM (formerly WDRE-FM), in
Philadelphia, for approximately $20.0 million, after having operated the
station under an LMA since February 8, 1997. On March 16, 1998, Radio One,
through an Unrestricted Subsidiary, acquired BHI, owner and operator of WYCB-
AM, in Washington, D.C., for approximately $3.8 million. On June 30, 1998,
Radio One acquired Bell Broadcasting, owner and operator of WDTJ-FM (formerly
WCHB-FM) and WCHB-AM in Detroit, and WJZZ-AM in Kingsley, Michigan, for
approximately $34.2 million. On December 28, 1998, Radio One acquired Allur-
Detroit, owner and operator of WWBR-FM, in Detroit, for approximately $26.5
million.
The consolidated financial statements of Radio One included elsewhere in
this prospectus set forth the results of operations of: WPHI-FM for
approximately 11 months of fiscal year 1997, including the LMA period, and for
fiscal year 1998; WYCB-AM from March 16, 1998, through the end of fiscal year
1998; Bell Broadcasting from July 1, 1998, through the end of fiscal year 1998;
and Allur-Detroit from December 29, 1998, through the end of fiscal year 1998.
The discussion below concerning results of operations reflects the operations
of radio stations Radio One owned and/or managed during the periods presented.
As a result of the acquisition of WPHI-FM in May 1997, WYCB-AM in March 1998,
Bell Broadcasting in June 1998, and Allur-Detroit in December 1998, Radio One's
historical financial data prior to such times are not directly comparable to
Radio One's historical financial data for subsequent periods. Additionally, due
to recent acquisition activity, our 1998 pro forma results differ materially
from our actual 1998 results. For the year ended December 31, 1998, pro forma
for completed transactions, net broadcast revenue and broadcast cash flow were
approximately $60.8 million and $27.0 million, respectively, compared to actual
net broadcast revenue and broadcast cash flow of $46.1 million and $21.6
million, respectively.
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Results of Operations
The following table summarizes Radio One's historical consolidated results
of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Statement of Operations:
Net broadcast revenue........................... $23,702 $32,367 $46,109
Station operating expenses...................... 13,927 18,848 24,501
Corporate expenses.............................. 1,793 2,155 2,800
Depreciation and amortization................... 4,262 5,828 8,445
------- ------- -------
Operating income.............................. 3,720 5,536 10,363
Interest expense................................ 7,252 8,910 11,455
Other income (expense), net..................... (77) 415 358
------- ------- -------
Loss before benefit for income taxes and
extraordinary item............................. (3,609) (2,959) (734)
------- ------- -------
Income tax benefit.............................. -- -- 1,575
------- ------- -------
Income (loss) before extraordinary item....... (3,609) (2,959) 841
Extraordinary loss.............................. -- 1,985 --
------- ------- -------
Net income (loss)............................. $(3,609) $(4,944) $ 841
======= ======= =======
Broadcast cash flow............................. $ 9,775 $13,519 $21,608
Broadcast cash flow margin...................... 41.2% 41.8% 46.9%
EBITDA.......................................... $ 7,982 $11,364 $18,808
After-tax cash flow............................. 806 2,869 7,248
</TABLE>
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31,
1997
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$46.1 million for the fiscal year ended December 31, 1998, from approximately
$32.4 million for the fiscal year ended December 31, 1997, or 42.3%.
Approximately $3.8 million of the increase was attributable to stations
acquired during 1998. On a same station basis, net revenue for the period
increased approximately 30.6% to approximately $42.3 million in 1998 from
approximately $32.4 million in 1997. This increase was the result of continuing
broadcast revenue growth in Radio One's Washington, D.C., Baltimore, and
Philadelphia markets as we benefitted from ratings increases at certain of our
radio stations, improved power ratios at these stations and radio market
growth.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $24.5 million for the
fiscal year ended December 31, 1998, from approximately $18.8 million for the
fiscal year ended December 31, 1997, or 30.3%. Approximately $2.5 million of
the increase was attributable to stations acquired during 1998. On a same
station basis, station operating expenses for the period increased
approximately 17.0% to approximately $22.0 million in 1998 from approximately
$18.8 million in 1997. This increase was primarily related to increases in
sales commissions and license fees due to significant revenue growth, as well
as additional programming costs related to ratings gains at some of our larger
radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.8
million for the fiscal year ended December 31, 1998, from approximately $2.2
million for the fiscal year ended December 31, 1997, or 27.3%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% notes due 2004 and costs
associated with our public reporting requirements.
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Depreciation and Amortization. Depreciation and amortization increased to
approximately $8.4 million for the fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8%. This increase was due primarily to our asset growth as well as our
acquisitions in 1998.
Operating Income. Operating income increased to approximately $10.4 million
for the fiscal year ended December 31, 1998, from approximately $5.5 million
for the fiscal year ended December 31, 1997, or 89.1%. This increase was
attributable to the increases in broadcast revenues partially offset by higher
operating expenses and higher depreciation and amortization expenses as
described above.
Interest Expense. Interest expense increased to approximately $11.5 million
for the fiscal year ended December 31, 1998, from approximately $8.9 million
for the fiscal year ended December 31, 1997, or 29.2%. This increase was
primarily due to the 12% notes offering, the retirement of our approximately
$45.6 million bank credit facility and borrowings under our bank credit
facility associated with the Bell Broadcasting acquisition.
Other Income. Other income decreased to $358,000 for the fiscal year ended
December 31, 1998, from $415,000 for the fiscal year ended December 31, 1997,
or 13.7%. This decrease was primarily attributable to lower interest income due
to lower cash balances as we used a portion of our cash balances to help fund
the Bell Broadcasting acquisition.
Loss before Benefit from Income Taxes. Loss before benefit from income taxes
decreased to $734,000 for the fiscal year ended December 31, 1998, from
approximately $3.0 million for the fiscal year ended December 31, 1997, or
75.5%. This decrease was due to higher operating income partially offset by
higher interest expense and lower other income. The income tax benefit of
approximately $1.6 million for the year ended December 31, 1998, was the result
of reversing our valuation allowance recorded in prior years related to our net
operating loss carryforward and other deferred tax assets, offset by an income
tax provision of $483,000 as we had net income for tax reporting purposes as a
result of non-deductible amortization expense for income tax purposes. Certain
intangible assets acquired as a result of the Bell Broadcasting acquisition
maintained their old income tax basis because the Bell Broadcasting acquisition
was a stock purchase.
Net Income (Loss). Net income increased to $841,000 for the fiscal year
ended December 31, 1998, from a net loss of approximately $4.9 million for the
fiscal year ended December 31, 1997. The increase was due to higher operating
income and an income tax benefit, partially offset by higher interest expense
as described above and an approximate $2.0 million extraordinary loss related
to the refinancing of debt.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $21.6
million for the fiscal year ended December 31, 1998, from approximately $13.5
million for the fiscal year ended December 31, 1997, or 60.0%. Approximately
$1.3 million of the increase was attributable to stations acquired during 1998.
On a same station basis, broadcast cash flow for the period increased
approximately 50.4% to approximately $20.3 million in 1998 from approximately
$13.5 million in 1997. This increase was attributable to the increase in net
broadcast revenue partially offset by higher station operating expenses as
described above.
Our broadcast cash flow margin increased to approximately 46.9% for the
fiscal year ended December 31, 1998, from 41.8% for the fiscal year ended
December 31, 1997. On a same station basis, broadcast cash flow margin for the
period increased to approximately 48.0% in 1998 from approximately 41.8% in
1997. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1998 was the result of our recent entrance into the Detroit market where we
acquired underperforming stations with profit margins lower than those of many
of the radio stations we own in markets in which we have operated for a longer
period of time.
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EBITDA. EBITDA increased to approximately $18.8 million for the fiscal year
ended December 31, 1998, from approximately $11.4 million for the fiscal year
ended December 31, 1997, or 64.9%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher station operating
and corporate expenses as described above.
After-Tax Cash Flow. After-tax cash flow increased to approximately $7.2
million for the fiscal year ended December 31, 1998, from approximately $2.9
million for the fiscal year ended December 31, 1997, or 148.3%. This increase
was attributable to higher net income and depreciation and amortization as
described above.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended December 31,
1996
Net Broadcast Revenue. Net broadcast revenue increased to approximately
$32.4 million for the fiscal year ended December 31, 1997, from approximately
$23.7 million for the fiscal year ended December 31, 1996, or 36.7%.
Approximately $2.6 million of the increase was attributable to the station
acquired during 1997. On a same station basis, net revenue for the period
increased approximately 25.7% to approximately $29.8 million in 1997 from
approximately $23.7 million in 1996. This increase was primarily the result of
significant net broadcast revenue growth in our Washington, D.C. and Baltimore
markets as we benefitted from ratings increases at our larger radio stations as
well as radio market growth.
Station Operating Expenses. Station operating expenses excluding
depreciation and amortization increased to approximately $18.8 million for the
fiscal year ended December 31, 1997, from approximately $13.9 million for the
fiscal year ended December 31, 1996, or 35.3%. Approximately $2.4 million of
the increase was attributable to stations acquired during 1997. On a same
station basis, station operating expenses for the period increased
approximately 18.0% to approximately $16.4 million in 1997 from approximately
$13.9 million in 1996. This increase was due to higher sales, programming and
administrative costs associated with the significant net broadcast revenue
growth and ratings gains at our radio stations.
Corporate Expenses. Corporate expenses increased to approximately $2.2
million for the fiscal year ended December 31, 1997, from approximately $1.8
million for the fiscal year ended December 31, 1996, or 22.2%. This increase
was due primarily to growth in the corporate staff consistent with our overall
expansion, annual costs associated with the 12% notes due 2004 and the costs
associated with our public reporting requirements.
Depreciation and Amortization. Depreciation and amortization increased to
approximately $5.8 million for the fiscal year ended December 31, 1997, from
approximately $4.3 million for the fiscal year ended December 31, 1996, or
34.9%. This increase was due primarily to our acquisition of WPHI-FM (formerly
WDRE-FM) in 1997.
Operating Income. Operating income increased to approximately $5.5 million
for the fiscal year ended December 31, 1997, from approximately $3.7 million
for the fiscal year ended December 31, 1996, or 48.6%. This increase was
attributable to the increases in net broadcast revenue partially offset by
higher operating expenses, higher depreciation and amortization expenses and
start-up losses incurred earlier in 1997 related to the acquisition of WPHI-FM.
Interest Expense. Interest expense increased to approximately $8.9 million
for the fiscal year ended December 31, 1997, from approximately $7.3 million
for the fiscal year ended December 31, 1996, or 21.9%. This increase related
primarily to the 12% notes offering and the associated retirement of our $45.6
million bank credit facility at that time.
Other Income (Loss). Other income increased to approximately $415,000 for
the fiscal year ended December 31, 1997, from a loss of approximately $77,000
for the fiscal year ended December 31, 1996. This increase was primarily
attributable to higher interest income due to higher cash balances associated
with our cash flow growth and capital raised in the 12% notes offering.
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<PAGE>
Loss before Benefit for Income Taxes. Loss before provision for income taxes
and extraordinary item decreased to approximately $3.0 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the fiscal
year ended December 31, 1996, or 16.7%. The decrease was due to higher
operating and other income partially offset by higher interest expense
associated with the 12% notes offering.
Net Loss. Net loss increased to approximately $4.9 million for the fiscal
year ended December 31, 1997, from approximately $3.6 million for the fiscal
year ended December 31, 1996, or 36.1%. This increase was due to a loss of
approximately $2.0 million on the early retirement of the indebtedness under a
former bank credit facility with the proceeds from the 12% notes offering, as
well as the exchange of our 15% subordinated promissory notes due 2004 for
existing preferred stock.
Broadcast Cash Flow. Broadcast cash flow increased to approximately $13.5
million for the fiscal year ended December 31, 1997, from approximately $9.8
million for the fiscal year ended December 31, 1996, or 37.8%. Approximately
$0.2 million of the increase was attributable to stations acquired during 1997.
On a same station basis, broadcast cash flow for the period increased
approximately 35.7% to approximately $13.3 million in 1997 from approximately
$9.8 million in 1996. This increase was attributable to the increases in net
broadcast revenue partially offset by higher station operating expenses.
Our broadcast cash flow margin increased to approximately 41.8% for the
fiscal year ended December 31, 1997 from 41.2% for the fiscal year ended
December 31, 1996. On a same station basis, broadcast cash flow margin for the
period increased to approximately 44.6% in 1997 from approximately 41.2% in
1996. This increase was the result of strong revenue gains in our more mature
markets partially offset by slower expense growth in those markets. The lower
actual broadcast cash flow margin versus that reported on a same station basis
for 1997 is the result of our entry into the Philadelphia market where we
acquired an underperforming station with profit margins lower than those of
many of the radio stations we own in markets in which we have operated for a
longer period of time.
EBITDA. EBITDA increased to approximately $11.4 million for the fiscal year
ended December 31, 1997, from approximately $8.0 million for the fiscal year
ended December 31, 1996, or 42.5%. This increase was attributable to the
increase in net broadcast revenue partially offset by higher operating and
corporate expenses.
After-Tax Cash Flow. After-tax cash flow increased to approximately $2.9
million for the fiscal year ended December 31, 1997, from approximately
$806,000 for the fiscal year ended December 31, 1996, or 259.8%. This increase
was attributable to higher net income and depreciation and amortization as
described above.
Liquidity and Capital Resources
Our primary source of liquidity is cash provided by operations and, to the
extent necessary, undrawn commitments available under the bank credit facility.
Our ability to borrow in excess of the commitments set forth in the credit
agreement is limited by the terms of the indenture and our preferred stock.
Additionally, such terms place restrictions on Radio One with respect to the
sale of assets, liens, investments, dividends, debt repayments, capital
expenditures, transactions with affiliates, consolidation and mergers, and the
issuance of equity interests among other things.
We have used a significant portion of our capital resources to consummate
acquisitions. These acquisitions were or will be funded from (1) the bank
credit facility, (2) the proceeds of this offering and the preferred stock
offering, and (3) internally generated cash flow. A portion of the net proceeds
from these offerings will be used to repay our outstanding indebtedness under
the bank credit facility. See "Use of Proceeds."
Radio One's balance of cash and cash equivalents was approximately $4.5
million as of December 31, 1998, and approximately $8.5 million as of December
31, 1997. This decrease in cash resulted primarily from
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<PAGE>
our use of approximately $9.5 million of our then available cash to fund
partially the Bell Broadcasting acquisition, offset by an increase in cash from
operations. The balance of the purchase price and expenses related to the Bell
Broadcasting acquisition was funded with approximately $25.4 million drawn on a
$32.5 million bank credit facility that we entered into concurrent with the
closing of the acquisition of Bell Broadcasting. We subsequently increased the
bank credit facility to $57.5 million from which we drew down an additional
$24.0 million to fund partially the acquisition of Allur-Detroit. On December
31, 1998, approximately $8.1 million was available to be drawn down from the
bank credit facility. On February 26, 1999, we entered into an amended and
restated credit agreement under which we may borrow up to $100 million on a
revolving basis from a group of banking institutions, subject to financial
ratio restrictions. Immediately following the acquisition of ROA, approximately
$72.0 million was outstanding under our bank credit facility and approximately
$18.3 million was available to be borrowed.
Concurrent with this offering, we anticipate issuing $50 million in new
preferred stock. The proceeds of the preferred stock offering will be used in
part to increase availability under our bank credit facility. This availability
is expected to be used in part to fund pending acquisitions. In the event the
preferred stock offering is not consummated, we believe we have adequate
liquidity and access to other financing sources to fund these acquisitions.
Net cash flow from operating activities increased to approximately $9.3
million for the fiscal year ended December 31, 1998, from approximately $4.9
million for the fiscal year ended December 31, 1997, or 89.8%. This increase
was primarily due to net income (versus a net loss in 1997) and non-cash
expenses. Non-cash expenses of depreciation and amortization increased to
approximately $8.4 million for fiscal year ended December 31, 1998, from
approximately $5.8 million for the fiscal year ended December 31, 1997, or
44.8% due to our recent acquisitions, as well as leasehold improvements made to
our new headquarters and Washington, D.C. radio studios in the second half of
1997. Non-cash expenses of amortization of debt financing costs, unamortized
discount and deferred interest increased to approximately $4.1 million for the
fiscal year ended December 31, 1998, from approximately $3.3 million for the
fiscal year ended December 31, 1997, or 24.2%, due to the 12% notes offering.
We also incurred a non-cash expense of approximately $2.0 million related to
the loss on extinguishment of debt during the fiscal year ended December 31,
1997.
Net cash flow used in investing activities increased to approximately $61.2
million for the fiscal year ended December 31, 1998, compared to approximately
$23.2 million for the fiscal year ended December 31, 1997, or 163.8%. During
the fiscal year ended December 31, 1998, we acquired Bell Broadcasting for
approximately $34.2 million plus the cost of additional assets and expenses
related to the transaction, and acquired Allur-Detroit for approximately $26.5
million. Additionally, we made purchases of capital equipment totaling
approximately $2.2 million. During the fiscal year ended December 31, 1997, we
acquired WPHI-FM for approximately $20.0 million and made purchases of capital
equipment totaling approximately $2.0 million.
Net cash flow from financing activities was approximately $47.8 million for
the fiscal year ended December 31, 1998. During the fiscal year ended December
31, 1998, Radio One entered into a $57.5 million bank credit facility, of
which, approximately $49.4 million was used to finance partially the
acquisitions of Bell Broadcasting and Allur-Detroit. In conjunction with this
facility, we incurred approximately $1.0 million in deferred debt financing
costs. Additionally, during the fiscal year ended December 31, 1998, a wholly-
owned Unrestricted Subsidiary of Radio One financed the acquisition of WYCB-AM
with a promissory note due to the seller for approximately $3.8 million. Net
cash flow from financing activities was approximately $25.1 million for the
fiscal year ended December 31, 1997. During the fiscal year ended December 31,
1997, we completed the 12% notes offering and raised net proceeds of
approximately $72.8 million. We used approximately $18.7 million of these
proceeds to acquire WPHI-FM (formerly WDRE-FM) and approximately $45.6 million
of the proceeds to retire the outstanding indebtedness under our then existing
bank credit facility. In conjunction with the 12% notes offering we incurred
approximately $2.1 million in deferred debt financing costs. As a result, cash
and cash equivalents decreased by approximately $4.0 million during the fiscal
year ended December 31, 1998, compared to an increase of approximate $6.8
million during the fiscal year ended December 31, 1997.
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We continuously review, and are currently reviewing, opportunities to
acquire additional radio stations, primarily in the top 30 African-American
markets. Although we engage in discussions regarding potential acquisitions
from time to time in the ordinary course of business, as of the date of this
prospectus, other than the pending transactions, we have no written or oral
understandings, letters of intent or contracts to acquire radio stations. We
anticipate that any future radio station acquisitions would be financed through
funds generated from operations, equity financings, permitted debt financings,
debt financings through Unrestricted Subsidiaries or a combination of these
sources. However, there can be no assurance that financing from any of these
sources, if available, will be available on favorable terms.
Management believes that, based on current levels of operations and
anticipated internal growth, cash flow from operations together with other
available sources of funds will be adequate for the foreseeable future to make
required payments of interest on Radio One's indebtedness, to fund anticipated
capital expenditures and working capital requirements and to enable us to
comply with the terms of our debt agreements. Our ability to meet our debt
service obligations and reduce our total debt, and our ability to refinance the
12% notes due 2004, at or prior to their scheduled maturity date in 2004, will
depend upon our future performance which, in turn, will be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control. For 1999, we anticipate maintenance capital
expenditures to be between $1.0 million and $2.0 million and total capital
expenditures to be between $4.0 million and $6.0 million. During 1997, Radio
One converted from a S corporation to a C corporation.
Impact of Inflation
We believe that inflation has not had a material impact on our results of
operations for each of our fiscal years in the three-year period ended December
31, 1998. However, there can be no assurance that future inflation would not
have an adverse impact on our operating results and financial condition.
Seasonality
Seasonal net broadcast revenue fluctuations are common in the radio
broadcasting industry and are due primarily to fluctuations in advertising
expenditures by local and national advertisers. Radio One's first fiscal
quarter generally produces the lowest net broadcast revenue for the year.
Year 2000 Compliance
Radio One has commenced a process to ensure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. This
process involves four phases:
Phase I--Inventory and Data Collection. This phase involves an
identification of all systems that are date dependent. This phase
was completed during the first quarter of 1998.
Phase II--Compliance Identification. This phase involves Radio One
identifying and beginning to replace critical systems that cannot
be updated or certified as compliant. We commenced this phase in
the first quarter of 1999 and expect to complete the substantial
majority of this phase before the end of the second quarter of
1999. To date, we have verified that our accounting, payroll, and
local wide area network hardware and software systems are
substantially compliant. In addition, we have determined that
most of our personal computers and PC applications are compliant.
We are currently reviewing our security systems and other
miscellaneous systems.
Phase III--Test, Fix, and Verify. This phase involves testing all systems
that are date dependent and upgrading all non-compliant systems. We
expect to complete this phase during the third quarter of 1999.
Phase IV--Final Testing, New Item Compliance. This phase involves a review
of failed systems for compliance and re-testing as necessary. We
expect to complete this phase by the end of the third quarter of
1999.
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To date, we have no knowledge that any of our major systems are not Year
2000 ready or will not be Year 2000 ready by the end of the third quarter of
1999. We have not incurred significant expenditures and believe we will achieve
substantial Year 2000 readiness without the need to acquire significant new
hardware, software or systems. As part of our expansion over the past two
years, we have undertaken significant build-outs, upgrades and expansions to
our radio station studios, business offices and technology infrastructure.
These enhancement efforts are continuing in all of the markets in which we have
recently acquired radio stations and will expand into the new markets in which
we will be acquiring radio stations. We believe that most, if not all, of the
new equipment installed in conjunction with these recent build-outs is Year
2000 compliant. Based upon our experience to date, we estimate the remaining
costs to achieve Year 2000 readiness will be approximately $100,000,
independent of the costs associated with the previously-mentioned expansions
which are being undertaken in the normal course of our business development.
All costs directly related to preparing for Year 2000 readiness will be
expensed as incurred. We are not aware of any Year 2000 problems that would
have a material effect on our operations. We are also not aware of any non-
compliance by our suppliers that is likely to have material impact on our
business. Nevertheless, we cannot assure you that our critical systems, or the
critical systems of our suppliers, will be Year 2000 ready.
We do not intend to develop any contingency plans to address possible
failures by us or our vendors related to Year 2000 compliance. We do not
believe that such contingency plans are required because we believe that we and
our significant vendors will be Year 2000 compliant before January 2000.
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BUSINESS
Radio One was founded in 1980 and is the largest radio broadcasting company
in the United States primarily targeting African-Americans. After we complete
our pending acquisitions, we will own and operate 25 radio stations. Twenty-
four of these stations (seventeen FM and seven AM) are in eight of the top 20
African-American radio markets: Washington, D.C., Baltimore, Atlanta,
Philadelphia, Detroit, St. Louis, Cleveland and Richmond. Our strategy is to
expand within our existing markets and into new markets that have a significant
African-American presence. We believe radio broadcasting primarily targeting
African-Americans has significant growth potential. We also believe that we
have a competitive advantage in the African-American market and the radio
industry in general, due to our primary focus on urban formats, our skill in
programming and marketing these formats, and our turnaround expertise.
We have succeeded in increasing ratings, net broadcast revenue and broadcast
cash flow of all of the FM stations we have owned or managed for at least one
year. The radio station clusters that we owned as of December 31, 1998, were
ranked first or second in all of their markets in combined audience and net
broadcast revenue share among radio stations targeting African-Americans. Our
net broadcast revenue and broadcast cash flow have grown significantly on both
a total and same station basis:
. Net broadcast revenue grew at a compound annual rate of 60.2% from an
actual $23.7 million in 1996 to $60.8 million in 1998, pro forma for
completed transactions.
. Broadcast cash flow grew at a compound annual rate of 65.3% from an
actual $9.8 million in 1996 to $26.7 million in 1998, pro forma for
completed transactions.
. Same station net broadcast revenue and broadcast cash flow grew at
average annual rates of 28.0% and 42.7%, respectively, from 1996 through
1998, pro forma for Radio One of Atlanta, Inc., which was managed by us
during this period.
. After-tax cash flow grew at a compound annual rate of 206.2% from an
actual $0.8 million in 1996 to $7.5 million in 1998, pro forma for
completed transactions.
Radio One is led by our Chairperson and co-founder, Ms. Catherine L. Hughes,
and her son, Mr. Alfred C. Liggins, III, our Chief Executive Officer and
President, who together have over 40 years of operating experience in radio
broadcasting. Ms. Hughes, Mr. Liggins and our strong management team have
successfully implemented a strategy of acquiring and turning around
underperforming radio stations. We believe that we are well positioned to apply
our proven operating strategy to our recently or soon to be acquired stations
in Detroit, St. Louis, Cleveland and Richmond, and to other radio stations in
existing and new markets as attractive acquisition opportunities arise.
The African-American Market Opportunity
We believe that operating urban formatted radio stations primarily targeting
African-Americans has significant growth potential for the following reasons:
. Rapid African-American Population Growth. From 1980 to 1995, the
African-American population increased from approximately 26.7 million to
33.1 million, a 19.3% increase, compared to a 13.7% increase in the
population as a whole. Furthermore, the African-American population is
expected to exceed 40 million by 2010, a more than 17.5% increase from
1995, compared to an expected increase of 11.8% for the population as a
whole. (Source: 1996 U.S. Census Bureau Current Population Report)
. Higher African-American Income Growth. According to the U.S. Census
Bureau, from 1980 to 1995, the rate of increase in median family
household income in 1995 adjusted dollars for African-Americans was
approximately 10.7% compared to 4.3% for the population as a whole.
African-American buying power is estimated to reach $533 billion in
1999, up 73.0% from 1990 compared to a 57.0% increase for all Americans,
and to account for 8.2% of total buying power in 1999, compared to 7.4%
in 1990. (Source: "African-American Buying Power by Place of Residence:
1990-1999," Dr. Jeffrey M. Humphreys). In addition, the African-American
consumer tends to have a different consumption profile than non-African-
Americans. For example, 31% of African-Americans purchased
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<PAGE>
a TV, VCR or stereo in the past year compared to 25% of average U.S.
households. African-Americans' higher than average rate of consumption
is a powerful reason for U.S. retailers to increase targeted advertising
spending toward this consumer group. (Source: Pricewaterhouse Coopers,
LLP 1998 Study)
. Growth in Advertising Targeting the African-American Market. We believe
that large corporate advertisers are becoming more focused on reaching
minority consumers in the United States. The African-American and
Hispanic communities are viewed as an emerging growth market within the
mature domestic market. A 1997 study estimated that major national
advertisers spent $881 million on advertising targeting African-American
consumers, up from $463 million in 1985. (Source: Target Market News
(Chicago, IL-1997)). For example, Ford Motor Company reportedly plans to
increase its spending targeting African-Americans and Hispanics by 20%
in the 1998-99 model year. (Source: Ad Week Midwest September 28, 1998).
We believe Ford is one example of many large corporations currently
expanding their commitment to ethnic advertising.
. Growing Influence of African-American Culture. We believe that there is
an ongoing "urbanization" of many facets of American society as
evidenced by the influence of African-American culture in the areas of
music (for example, hip-hop and rap music), film, fashion, sports and
urban-oriented television shows and networks. We believe that companies
as disparate as the News Corporation's Fox television network, the
sporting goods manufacturer Nike(R), the fast food chain McDonald's(R),
and prominent fashion designers have embraced this urbanization trend in
their products as well as their advertising messages.
. Growing Popularity of Radio Formats Primarily Targeting African-
Americans. We believe that urban programming has been expanded to target
a more diverse urban listener base and has become more popular with
listeners and advertisers over the past ten years. The number of urban
radio stations has increased from 294 in 1990 to an estimated 371 in
1998, or 26%, and is expected to increase an additional 10% to 409 by
2002. In Fall 1997, urban formats were one of the top three formats in
nine of the top ten radio markets nationwide and the top format in five
of these markets. (Source: INTEREP, Research Division, 1998 Regional
Differences in Media Usage Study)
. Concentrated Presence of African-Americans in Urban Markets. In 1996,
approximately 55.6% of the African-American population was located in
the top 30 African-American markets. Relative to radio broadcasters
targeting a broader audience, we believe we can cover the various
segments of our target market with fewer programming formats and
therefore fewer radio stations than the maximum of eight allowed by the
FCC. (Source: BIA, Fourth Edition 1998)
. Strong African-American Listenership and Loyalty. In 1996, African-
Americans in the ten largest markets listened to radio broadcasts an
average of 27.0 hours per week. (Source: INTEREP Research Division, 1998
Urban Radio Study) This compares to 22.0 hours per week for all
Americans. (Source: The Chronicle of Higher Education February 19,
1999). In addition, we believe that African-American radio listeners
exhibit greater loyalty to radio stations that target the African-
American community because those radio stations become a valuable source
of entertainment and information responsive to the community's interests
and lifestyles.
Acquisition Strategy
Our acquisition strategy is to acquire and turn around underperforming radio
stations principally in the top 30 African-American markets. We consider
acquisitions in existing markets where expanded coverage is desirable and in
new markets where we believe it is advantageous to establish a presence. In
analyzing potential acquisition candidates, we generally consider:
. the price and terms of the purchase;
. whether the radio station has a signal adequate to reach a large
percentage of the African-American community in a market;
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<PAGE>
. whether we can increase ratings and net broadcast revenue of the radio
station;
. whether we can reformat or improve the radio station's programming in
order to serve profitably the African-American community;
. whether the radio station affords us the opportunity to introduce
complementary formats in a market where we already maintain a presence;
and
. the number of competitive radio stations in the market.
For strategic reasons, or as a result of a station cluster purchase, we may
also acquire and operate stations with formats that target non-African-American
segments of the population.
Turnaround Expertise
We typically enter a market by acquiring a station or stations that have
little or negative broadcast cash flow. Additional stations we have acquired in
existing markets have often been, in our opinion, substantially
underperforming. By implementing our operating strategies, we have succeeded in
increasing ratings, net broadcast revenue and broadcast cash flow of all the FM
stations we have owned or managed for at least one year. We have achieved these
improvements while operating against much larger competitors. Some of these
successful turnarounds are described below by market:
. Washington, D.C. In 1995, we acquired WKYS-FM for approximately $34.0
million. At the time, WKYS-FM was ranked number 12 by Arbitron in the
12-plus age demographic. Over a two-year period, we repositioned WKYS-
FM, improved its programming and enhanced the station's community
involvement and image. In the Fall 1998 Arbitron Survey, the station was
ranked number one in the 18-34 age demographic (with a 10.2 share) and
number two in the 12-plus age demographic (with a 5.4 share), behind two
stations tied for number one (each with a 5.6 share).
In 1987, we acquired WMMJ-FM for approximately $7.5 million. At the
time, WMMJ-FM was being programmed in a general market Adult
Contemporary format, and had a 1.2 share of the 12-plus age
demographic. After extensive research we changed the station's format,
making WMMJ-FM the first FM radio station on the East Coast to
introduce an Urban Adult Contemporary programming format. In the Fall
1998 Arbitron Survey, the station was ranked number three in the 25-54
age demographic (with a 5.8 share) and number five in the 12-plus age
demographic (with a 5.0 share).
. Baltimore. In 1993, we acquired WERQ-FM and WOLB-AM (formerly WERQ-AM)
for approximately $9.0 million. At the time, these stations had mediocre
ratings. We converted WERQ-FM's programming to a more focused Young
Urban Contemporary format and began aggressively marketing the station.
WERQ-FM is now Baltimore's dominant station, ranked number one in the
12-plus, 18-34 and 25-54 age demographics in the Fall 1998 Arbitron
Survey, a position it first achieved in the Spring 1997 Arbitron Survey.
In 1992, we acquired WWIN-FM and its sister station, WWIN-AM, for
approximately $4.7 million. At the time, WWIN-FM was a distant second
in ratings to its in-format direct competitor, WXYV-FM. We repositioned
WWIN-FM towards the 25-54 age demographic, and in the Fall 1998
Arbitron Survey the station was ranked number two in that age
demographic (with a 7.5 share) behind two stations tied for number one
(each with a 7.7 share), including Radio One's WERQ-FM.
. Atlanta. In 1995, ROA, then an affiliate of Radio One, acquired WHTA-FM
(formerly WQUL- FM), a Class A radio station located approximately 40
miles from Atlanta, for approximately $4.5 million. Prior to that
acquisition, the previous owners, together with our management, upgraded
and moved the station approximately 20 miles closer to Atlanta. The
result was the introduction of a new, Young Urban Contemporary radio
station in the Atlanta market. The station's ratings increased quickly,
to an approximate 5.0 share in the 12-plus age demographic. In the Fall
1998 Arbitron Survey, the station was ranked number four in the 18-34
age demographic (with an 8.3 share).
41
<PAGE>
. Philadelphia. In May 1997, we acquired WPHI-FM (formerly WDRE-FM) for
approximately $20.0 million. At the time WDRE-FM was being programmed in
a Modern Rock format and had a 2.7 share in the 12 plus age demographic.
We changed the station's format to Young Urban Contemporary and, in the
Fall 1998 Arbitron Survey, the station was ranked number 14 in the 12-
plus age demographic (with a 3.3 share) and number five in the 18-34 age
demographic (with a 6.0 share).
Top 30 African-American Radio Markets in the United States
In the table below, boxes and bold text indicate markets where we currently
own or will own and operate radio stations upon consummation of the
acquisitions described under "Unaudited Pro Forma Consolidated Financial
Information." Population estimates are for 1996 and are based upon BIA
Investing in Radio Market Report ("BIA 1998 Fourth Edition").
Boxes enclose tabular information for Washington, D.C., Detroit, Philadelphia,
Atlanta, Baltimore, St. Louis, Cleveland and Richmond.
<TABLE>
<CAPTION>
African-Americans
as a Percentage of the
African-American Overall Population
Rank Market Population in the Market in the Market
---- ------ ------------------------ ----------------------
(in thousands)
<C> <S> <C> <C>
1. New York 3,731 22.2%
2. Chicago 1,648 19.4
- -------------------------------------------------------------------------------
3. Washington, D.C. 1,150 27.2
- -------------------------------------------------------------------------------
4. Los Angeles 1,134 9.4
- -------------------------------------------------------------------------------
5. Detroit 1,004 22.5
6. Philadelphia 947 19.9
7. Atlanta 921 25.7
- -------------------------------------------------------------------------------
8. Houston/Galveston 782 18.3
Miami/Ft. Lauderdale/
9. Hollywood 718 20.2
10. Dallas/Ft. Worth 645 14.2
- -------------------------------------------------------------------------------
11. Baltimore 644 26.0
- -------------------------------------------------------------------------------
12. San Francisco 599 9.2
13. Memphis 482 41.5
14. New Orleans 460 36.3
Norfolk/Virginia
15. Beach/Newport News 444 29.6
- -------------------------------------------------------------------------------
16. St. Louis 439 17.2
17. Cleveland 398 18.7
- -------------------------------------------------------------------------------
18. Boston 281 7.3
- -------------------------------------------------------------------------------
19. Richmond 281 30.0
- -------------------------------------------------------------------------------
Charlotte/Gastonia/Rock
20. Hill 266 19.9
21. Birmingham 261 27.0
22. Raleigh/Durham 244 23.5
23. Milwaukee/Racine 237 14.4
Greensboro/Winston
24. Salem/High Point 226 19.7
25. Nassau/Suffolk 221 8.3
26. Cincinnati 220 11.4
27. Kansas City 215 12.8
Tampa/St.
28. Petersburg/Clearwater 202 9.0
29. Jacksonville 201 19.2
30. San Diego 197 7.2
</TABLE>
42
<PAGE>
Operating Strategy
In order to maximize net broadcast revenue and broadcast cash flow at our
radio stations, we strive to achieve the largest audience share of African-
American listeners in each market, convert these audience share ratings to
advertising revenue, and control operating expenses. The success of our
strategy relies on the following:
. market research, targeted programming and marketing;
. strong management and performance-based incentives;
. strategic sales efforts;
. radio station clustering, programming segmentation and sales bundling;
. advertising partnerships and special events; and
. significant community involvement.
Market Research, Targeted Programming and Marketing
Radio One uses market research to tailor the programming, marketing and
promotions of our radio stations to maximize audience share. To achieve these
goals, we use market research to identify unserved or underserved markets or
segments of the African-American community in current and new markets and to
determine whether to acquire a new radio station or reprogram one of our
existing radio stations to target those markets or segments.
We also seek to reinforce our targeted programming by creating a distinct
and marketable identity for each of our radio stations. To achieve this
objective, in addition to our significant community involvement discussed
below, we employ and promote distinct, high-profile on-air personalities at
many of our radio stations, many of whom have strong ties to the African-
American community.
Strong Management and Performance-based Incentives
Radio One focuses on hiring highly motivated and talented individuals in
each functional area of the organization who can effectively help us implement
our growth and operating strategies. Radio One's management team is comprised
of a diverse group of individuals who bring expertise to their respective
functional areas. We seek to hire and promote individuals with significant
potential, the ability to operate with high levels of autonomy and the
appropriate team-orientation that will enable them to pursue their careers
within the organization.
To enhance the quality of our management in the areas of sales and
programming, general managers, sales managers and program directors have
significant portions of their compensation tied to the achievement of certain
performance goals. General managers' compensation is based partially on
achieving broadcast cash flow benchmarks which create an incentive for
management to focus on both sales growth and expense control. Additionally,
sales managers and sales personnel have incentive packages based on sales
goals, and program directors and on-air talent have incentive packages focused
on maximizing overall ratings as well as ratings in specific target segments.
Strategic Sales Efforts
Radio One has assembled an effective, highly trained sales staff responsible
for converting audience share into revenue. We operate with a focused, sales-
oriented culture which rewards aggressive selling efforts through a generous
commission and bonus compensation structure. We hire and deploy large teams of
sales professionals for each of our stations or station clusters, and we
provide these teams with the resources necessary to compete effectively in the
markets in which we operate. We utilize various sales strategies to sell
43
<PAGE>
and market our stations as stand-alones, in combination with other stations
within a given market and across markets, where appropriate.
Radio Station Clustering, Programming Segmentation and Sales Bundling
Radio One strives to build clusters of radio stations in our markets, with
each radio station targeting different demographic segments of the African-
American population. This clustering and programming segmentation strategy
allows us to achieve greater penetration into each segment of our target
market. We are then able to offer advertisers multiple audiences and to bundle
the radio stations for advertising sales purposes when advantageous.
We believe there are several potential benefits that result from operating
multiple radio stations in the same market. First, each additional radio
station in a market provides us with a larger percentage of the prime
advertising time available for sale within that market. Second, the more
stations we program, the greater the market share we can achieve in our target
demographic groups through the use of segmented programming. Third, we are
often able to consolidate sales, promotional, technical support and corporate
functions to produce substantial cost savings. Finally, the purchase of
additional radio stations in an existing market allows us to take advantage of
our market expertise and existing relationships with advertisers.
Advertising Partnerships and Special Events
We believe that in order to create advertising loyalty, Radio One must
strive to be the recognized expert in marketing to the African-American
consumer in the markets in which we operate. We believe that Radio One has
achieved this recognition by focusing on serving the African-American consumer
and by creating innovative advertising campaigns and promotional tie-ins with
our advertising clients and sponsoring numerous entertainment events each year.
We sponsor the Stone Soul Picnic, an all-day free outdoor concert which
showcases advertisers, local merchants and other organizations to over 100,000
people in each of Washington, D.C. and Baltimore. We also sponsor The People's
Expo every March in Washington, D.C. and Baltimore, which provides
entertainment, shopping and educational seminars to Radio One's listeners and
others from the communities we serve. In these events, advertisers buy signage,
booth space and broadcast promotions to sell a variety of goods and services to
African-American consumers. As we expand our presence in our existing markets
and into new markets, we plan to increase the number of events and the number
of markets in which we host these major events.
Significant Community Involvement
We believe our active involvement and significant relationships in the
African-American community provides a competitive advantage in targeting
African-American audiences. In this way, we believe our proactive involvement
in the African-American community in each of our markets significantly improves
the marketability of our radio broadcast time to advertisers who are targeting
such communities.
We believe that a radio station's image should reflect the lifestyle and
viewpoints of the target demographic group it serves. Due to our fundamental
understanding of the African-American community, we believe we are able to
identify music and musical styles, as well as political and social trends and
issues, early in their evolution. This understanding is then integrated into
all aspects of our operations and enables us to create enhanced awareness and
name recognition in the marketplace. In addition, we believe our multi-level
approach to community involvement leads to increased effectiveness in
developing and updating our programming formats. We believe our enhanced
awareness and more effective programming formats lead to greater listenership
and higher ratings over the long-term.
44
<PAGE>
We have a history of sponsoring events that demonstrate our commitment to
the African-American community, including:
. heightening the awareness of diseases which disproportionately impact
African-Americans, such as sickle-cell anemia and leukemia, and holding
fundraisers to benefit the search for their cure;
. developing contests specifically designed to assist African-American
single mothers with day care expenses;
. fundraising for the many African-American churches throughout the
country that have been the target of arsonists; and
. organizing seminars designed to educate African-Americans on personal
issues such as buying a home, starting a business, developing a credit
history, financial planning and health care.
Management Stock Option Plan
On March 10, 1999, we adopted the 1999 Stock Option and Restricted Stock
Grant Plan designed to provide incentives relating to equity ownership to
present and future executive, managerial, and other key employees of Radio One
and our subsidiaries. The option plan affords us latitude in tailoring
incentive compensation for the retention of key personnel, to support corporate
and business objectives, and to anticipate and respond to a changing business
environment and competitive compensation practices. For more information see
"Management--Stock Option Plan."
45
<PAGE>
Station Operations
The following is a general description of each of our markets and our radio
stations in each market. As noted, some of the data provided in the tables
below includes information during periods the radio stations listed were not
owned or operated by Radio One. Audience share and audience share rank data for
the years indicated are based on Arbitron Survey four book averages ending with
the Fall Arbitron Survey. Fall 1998 data are from the Fall 1998 Arbitron
Survey. Except as noted, revenue share and rank data are based upon the Radio
Revenue Report of Hungerford for 1998, 1997, 1996 and 1995 (as applicable). As
used in these tables, "n/a" means not applicable and "t" means tied with one or
more other radio stations.
Washington, D.C.
The Washington, D.C. market is estimated to be the eighth largest radio
market in terms of MSA population. In 1998, this market had advertising revenue
estimated to be $252.8 million, making it the sixth largest radio market in
terms of advertising revenue. In 1996, Washington, D.C. had the third largest
African-American population in the United States with an MSA population of
approximately 4.2 million, approximately 27.2% of which was African-American.
We believe that we own the strongest franchise in terms of audience share and
number of radio stations of African-American targeted radio stations in the
Washington, D.C. market, with two of the four FM radio stations and two of the
three AM radio stations that target African-Americans. Washington, D.C.
experienced annual radio revenue growth of 5.4% between 1991 and 1996, and
radio revenue in Washington, D.C. is expected to continue growing at an annual
pace of 7.4% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995 1996 1997 1998 Fall 1998
---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
WKYS-FM
Audience share (12-plus).............. 3.8 4.5 5.8 5.2 5.4
Audience share rank (12-plus)......... 9t 6t 2 3 3
Audience share (18-34)................ 5.8 7.5 10.4 10.0 10.2
Audience share rank (18-34)........... 6 2 1 1(t) 1
Revenue share......................... 3.8% 3.3% 4.5% 5.0% n/a
Revenue rank.......................... 14 14 10 9 n/a
WMMJ-FM
Audience share (12-plus).............. 3.7 4.5 4.1 4.3 5.0
Audience share rank (12-plus)......... 11t 6t 9 7(t) 5
Audience share (25-54)................ 4.6 5.4 4.9 5.2 5.8
Audience share rank (25-54)........... 8 3t 7 4 3
Revenue share......................... 3.7% 3.4% 2.9% 3.2% n/a
Revenue rank.......................... 15 13 17 18 n/a
WOL-AM
Audience share (12-plus).............. 1.7 1.0 1.1 0.8 0.7
Audience share rank (12-plus)......... 19 23t 20 24 25t
Audience share (35-64)................ 2.3 1.1 1.4 1.1 1.0
Audience share rank (35-64)........... 14t 23 19(t) 22 21t
Revenue share......................... 2.0% 1.8% 1.6% 0.8% n/a
Revenue rank.......................... 18 18 19 20 n/a
WMMJ-FM AND WOL-AM (advertising time
sold in combination)
Audience share (12-plus).............. 5.4 5.5 5.2 5.1 5.7
Audience share (25-54)................ 6.4 6.2 5.9 5.9 6.5
Revenue share......................... 5.6% 5.3% 4.5% 4.0% n/a
Revenue rank.......................... 7 8 12 11 n/a
WYCB-AM(1)
Audience share (12-plus).............. 1.6 1.3 1.2 1.0 0.9
Audience share rank (12-plus)......... 20 20 19 22 22t
Audience share (35-64)................ 1.7 1.5 1.4 1.1 1.0
Audience share rank (35-64)........... 19 18 19(t) 21 21t
Revenue share......................... n/a n/a n/a 0.5% n/a
Revenue rank.......................... n/a n/a n/a n/a n/a
</TABLE>
- --------
(1) WYCB-AM does not report to Hungerford. Revenue share for WYCB-AM represents
the radio station's net broadcast revenue as a percentage of the market
radio revenue reported by the Hungerford Report (December 1998), as
adjusted for WYCB-AM's net broadcast revenue.
46
<PAGE>
WOL-AM. In 1980, we acquired our first radio station, WOL-AM, for
approximately $950,000. WOL-AM was a music station with declining revenue and
audience shares that Radio One converted to one of the country's first all-talk
radio stations targeting African-Americans. Radio One's Chairperson, Ms.
Catherine L. Hughes, who hosted WOL-AM's daily four-hour morning show from 1983
to 1995, created a valuable niche for the radio station as "The Voice of
Washington's Black Community." We believe that WOL-AM is a vital communications
platform for the African-American community and political and business leaders
in its market. WOL-AM's ratings have historically fluctuated between a 1.0 and
2.0 share in the 12-plus age demographic market.
WMMJ-FM. In 1987, we purchased WMMJ-FM for approximately $7.5 million. At
the time, WMMJ-FM was being programmed in a general market Adult Contemporary
format, and had a 1.2 share of the 12-plus age demographic. After extensive
research we changed the station's format, making WMMJ-FM the first FM radio
station on the East Coast to introduce an Urban Adult Contemporary ("Urban AC")
programming format. This format focuses on African-Americans in the 25-54 age
demographic and provides adult-oriented Urban Contemporary music from the 1960s
through the 1990s. The Urban AC format was almost immediately successful, and
in the Fall 1998 Arbitron Survey, the station was ranked number three in the
25-54 age demographic (with a 5.8 share) and number five in the 12-plus age
demographic (with a 5.0 share). We are in the process of improving our
facilities by substituting a non-directional antenna for a directional antenna.
WKYS-FM. In June 1995, we purchased WKYS-FM for approximately $34.0 million.
WKYS-FM is a Young Urban Contemporary radio station targeting African-Americans
in the 18-34 age demographic. From 1978 to 1989, WKYS-FM was Washington, D.C.'s
perennial Urban Contemporary leader and was frequently the market's number one
radio station overall. However, in 1987, WPGC-FM (now owned by Infinity
Broadcasting ("Infinity")) challenged WKYS-FM by changing its format from Adult
Contemporary to Contemporary Hit/Urban ("CHR"). By Fall 1994, WKYS-FM had a 3.3
share of the 12-plus age demographic, while WPGC-FM had a 9.0 share of the 12-
plus age demographic. By 1995, the former owner of WKYS-FM abandoned the 18-34
age demographic and began to target the 25-54 age demographic, making it a
direct competitor to Radio One's WMMJ-FM instead of Infinity's WPGC-FM. When
Radio One purchased WKYS-FM in June 1995, we repositioned WKYS-FM's programming
away from WMMJ-FM and back toward the 18-34 age demographic. Since June 1995,
we have been able to increase dramatically WKYS-FM's overall 12-plus age
demographic share. In Fall 1997 WKYS-FM became Washington, D.C.'s number one
rated radio station for the 12-plus and 18-34 age demographics and during this
same period, WPGC-FM held the number two position in the 12-plus and 18-34 age
demographics. Recently, WKYS-FM's position has fluctuated between the number
one and number three rated station in the 12-plus age demographic while
maintaining its number one position in the 18-34 age demographic.
WYCB-AM. On March 16, 1998, we acquired, through an Unrestricted Subsidiary,
BHI, the owner of WYCB-AM, a Gospel station, for approximately $3.8 million.
Following the acquisition, we integrated the operations of WYCB-AM into our
existing radio station operations in the Washington, D.C. market.
47
<PAGE>
BALTIMORE, MARYLAND
The Baltimore market is estimated to be the 20th largest radio market in
terms of MSA population and advertising revenue. In 1998, this market had
advertising revenue estimated to be $105.8 million. In 1996, Baltimore had the
11th largest African-American population in the United States with an MSA
population of approximately 2.5 million, approximately 26.0% of which was
African-American. We believe we own the strongest franchise of African-American
targeted radio stations in the Baltimore market with the only two FM radio
stations and two of the four AM radio stations that target African-Americans.
Baltimore experienced annual radio revenue growth of 8.6% between 1991 and 1996
and radio revenue in Baltimore is expected to continue growing at an annual
pace of 6.2% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
<TABLE>
<CAPTION>
1995 1996 1997 1998 FALL 1998
---- ----- ---- ---- ---------
<S> <C> <C> <C> <C> <C>
WERQ-FM
Audience share (12-plus)................... 5.2 6.4 9.3 9.4 9.6
Audience share rank (12-plus).............. 7 4 1 1 1
Audience share (18-34)..................... 8.6 10.7 16 16.6 16.5
Audience share rank (18-34)................ 2 1 1 1 1
WOLB-AM
Audience share (12-plus)................... 0.9 0.6 0.9 0.9 0.8
Audience share rank (12-plus).............. 23t 28t 18 19 18(t)
Audience share (35-64)..................... 1.1 0.9 1.2 1.1 0.8
Audience share rank (35-64)................ 19t 21(t) 15 16t 19(t)
WERQ-FM AND WOLB-AM(/1/)
Audience share (12-plus)................... 6.1 7 10.2 10.3 10.4
Audience share (25-54)..................... 4.9 5.7 9.1 8.7 8.4
Revenue share.............................. 6.7% 6.6% 10.7% 13.1% n/a
Revenue rank............................... 8 8 4 2 n/a
WWIN-FM
Audience share (12-plus)................... 4.0 3.7 3.6 5.0 5.5
Audience share rank (12-plus).............. 10 10 9 7 6
Audience share (25-54)..................... 5.5 4.9 4.4 6.8 7.5
Audience share rank (25-54)................ 5 7t 8 4 3
WWIN-AM
Audience share (12-plus)................... 1.1 1.1 0.8 1.1 1.1
Audience share rank (12-plus).............. 18t 20t 19 17 16(t)
Audience share (35-64)..................... 1.1 1.4 1.1 1.1 0.8
Audience share rank (35-64)................ 19t 18 16t 19 19(t)
WWIN-FM AND WWIN-AM(/1/)
Audience share (12-plus)................... 5.1 4.8 4.4 6.1 6.6
Audience share (25-54)..................... 6.6 6.0 5.8 7.7 8.2
Revenue share.............................. 5.7% 5.8% 5.5% 6.0% n/a
Revenue rank............................... 10 10 9 8 n/a
</TABLE>
- --------
(1)Advertising time sold in combination. Revenue data jointly reported.
WWIN-FM and WWIN-AM. In January 1992, we made our first acquisition outside
the Washington, D.C. market with the purchase of WWIN-FM and its sister station
WWIN-AM for approximately $4.7 million. At the time, WWIN-FM was a distant
second in ratings to its in-format direct competitor WXYV-FM, with less than
one-third of that radio station's market share. Today, WWIN-FM is a leading
urban radio station in the 25-54 age demographic in the Baltimore market,
ranked number two in the Fall 1998 Arbitron Survey with a 7.5 share, and WWIN-
AM continues to occupy an attractive niche on the AM frequency with its Gospel
programming format.
48
<PAGE>
WERQ-FM and WOLB-AM. In September 1993, Radio One completed another
acquisition in the Baltimore market with the purchase of WERQ-FM and WOLB-AM
(formerly WERQ-AM) for approximately $9.0 million. WERQ-FM was, at the time of
its acquisition, a CHR/Urban radio station, while WERQ-AM was a satellite-fed,
all-news radio station. We converted the format of WERQ-FM to a more focused
Young Urban Contemporary format targeted at the 18-34 age demographic, while
WOLB-AM began simulcasting with WOL-AM, Radio One's Black Talk radio station in
Washington, D.C. After we aggressively marketed the station, WERQ-FM became
Baltimore's dominant station ranked number one in the 12-plus, 18-34 and 25-
54 age demographics in the Fall 1998 Arbitron Survey, a position it first
achieved in the Spring 1997 Arbitron Survey, while its former primary
competitor, WXYV-FM, changed format during 1997 and no longer targets the same
listener base as that of WERQ-FM.
Atlanta, Georgia
The Atlanta market is estimated to be the 13th largest radio market in terms
of MSA population. In 1998, this market had radio advertising revenue estimated
to be $242.2 million, making it the 10th largest radio market in terms of
advertising revenue. In 1996, Atlanta had the seventh largest African-American
population in the United States with an MSA population of approximately 3.6
million, approximately 25.7% of which was African-American. Due to a rapidly
growing local economy, the Atlanta market has one of the country's fastest
growth rates in terms of radio revenue. Atlanta experienced annual radio
revenue growth of 12.1% between 1991 and 1998, and radio revenue in Atlanta is
expected to continue growing at an average annual rate of 8.2% between 1997 and
2001. (Source: BIA 1998 Fourth Edition)
On March 30, 1999, Radio One acquired ROA, an affiliate of Radio One, for
approximately 3.3 million shares of Radio One common stock. Radio One also
assumed and retired approximately $16.3 million of indebtedness of ROA and
Dogwood. At the time, ROA owned approximately 33% of Dogwood. On March 30,
1999, ROA acquired the remaining approximate 67% of Dogwood for $3.6 million.
Founded in 1995, ROA owns and operates WHTA-FM. Dogwood owns WAMJ-FM which,
prior to ROA's acquisition of 100% of Dogwood, ROA operated under an LMA. Upon
the completion of these acquisitions, ROA became a wholly-owned subsidiary of
Radio One, and Dogwood became a wholly owned subsidiary of ROA. See "Certain
Relationships and Related Transactions."
In the following table, revenue share and rank data are based on the Radio
Revenue Report by Miller Kaplan for 1998, 1997 and 1996, as applicable. Revenue
share for WAMJ-FM represents its net broadcast revenue as a percentage of the
market radio revenue reported by Miller Kaplan for December 1998, as adjusted
for WAMJ-FM's net broadcast revenue.
<TABLE>
<CAPTION>
1996 1997 1998 Fall 1998
---- ---- ---- ---------
<S> <C> <C> <C> <C>
WHTA-FM
Audience share (12-plus)........................ 4.9 5.1 4.7 4.5
Audience share rank (12-plus)................... 9 8(t) 9 9
Audience share (18-34).......................... 8.0 8.8 8.6 8.3
Audience share rank (18-34)..................... 5 4 4 4
Revenue share................................... 2.2% 2.9% 3.5% n/a
Revenue rank.................................... 12 12 12 n/a
WAMJ-FM
Audience share (12-plus).................................. 2.2 1.8
Audience share rank (12-plus)............................. 15 17
Audience share (25-54).................................... 3.1 2.5
Audience share rank (25-54)............................... 13 14
Revenue share............................................. 1.1% n/a
Revenue rank.............................................. n/a n/a
</TABLE>
49
<PAGE>
WHTA-FM. In 1995, ROA acquired WHTA-FM (formerly WQUL-FM) from Design Media,
Inc. for approximately $4.5 million. WHTA-FM was a 6 kW Class A facility
licensed to Griffin, Georgia, a community 40 miles southwest of the Atlanta
market. Prior to selling the station, Design Media received a construction
permit to upgrade the station to Class C3 and changed its community of license
to Fayetteville, Georgia. In conjunction with Radio One's management, Design
Media moved the station's transmitter site 20 miles closer to Atlanta. In July
1995, ROA launched a new Young Urban Contemporary music format that has
consistently garnered a 4.5 to 5.0 share of the 12-plus age demographic. WHTA-
FM remains consistently ranked in the top three stations in its primary target
group, the 12-17 age demographic, and in the top five stations among its
secondary target group, the 18-34 age demographic, ranking number four in the
Fall 1998 Arbitron Survey with an 8.3 share.
WAMJ-FM. In March 1997, ROA entered into an agreement with Dogwood to
provide financing for a new 6 kW Class A radio station that had been assigned
to Roswell, Georgia, a community approximately twenty miles north of downtown
Atlanta. ROA received an approximate 33% ownership stake, along with an option
to purchase 100% of the station. ROA also entered into an LMA allowing ROA to
operate the station in the Atlanta market. On December 16, 1997, ROA launched
an R&B oldies format on WAMJ-FM targeting the 25-54 age demographic. In
November 1998, Dogwood received an FCC construction permit to upgrade WAMJ's
signal to Class C3. WAMJ-FM began operating at 25 kW in December 1998, greatly
improving its penetration of the Atlanta market and giving the station total
coverage of the Atlanta metropolitan area.
In Atlanta, we compete directly against Infinity's Urban Contemporary
station, WVEE-FM, and against Midwestern Broadcasting's Urban Adult
Contemporary station, WALR-FM. However, we own more FM radio stations targeting
African-Americans in Atlanta than any other entity.
PHILADELPHIA, PENNSYLVANIA
The Philadelphia market is estimated to be the fifth largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $242.3 million, making it the seventh largest radio market in terms of
advertising revenue. In 1996, Philadelphia had the sixth largest African-
American population in the United States with an MSA population of
approximately 4.9 million, approximately 19.9% of which was African-American.
Philadelphia experienced annual radio revenue growth of 9.4% between 1991 and
1996, and radio revenue in Philadelphia is expected to continue growing at an
annual pace of 6.5% between 1997 and 2001. (Source: BIA 1998 Fourth Edition)
In the following table, revenue share and rank data are based on the Radio
Revenue Report by Miller Kaplan for December 1998 and 1997, as applicable.
<TABLE>
<CAPTION>
1997 1998 FALL 1998
---- ---- ---------
<S> <C> <C> <C>
WPHI-FM
Audience share (12-plus)................................ 3.8 3.3 3.3
Audience share rank (12-plus)........................... 12 13t 14
Audience share (18-34).................................. 6.6 6.0 6.0
Audience share rank (18-34)............................. 3 5 5
Revenue share........................................... 1.2% 2.2% n/a
Revenue rank............................................ 18 16 n/a
</TABLE>
WPHI-FM. On February 8, 1997, we entered into an LMA with the owner of WPHI-
FM (formerly WDRE-FM), and changed the radio station's programming format from
Modern Rock to Young Urban Contemporary targeting the 18-34 age demographic. On
May 19, 1997, we acquired WPHI-FM for approximately $20.0 million, providing us
with an opportunity to apply our operating strategy in another top 30 African-
American market. Although WPHI-FM is a Class A facility operating at the
equivalent of 3 kW, we believe it adequately reaches at least 90% of African-
Americans in Philadelphia. In the Fall 1998 Arbitron Survey, WPHI-FM achieved a
3.3 share in the 12-plus age demographic and had solidly positioned itself as
the number two Young Urban Contemporary station in the market behind WUSL-FM.
50
<PAGE>
DETROIT, MICHIGAN
The Detroit market is estimated to be the seventh largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $225.1 million, making it the 11th largest radio market in terms of
advertising revenue. Detroit is the fifth largest African-American market with
an MSA population of approximately 4.5 million in 1996, approximately 22.5% of
which was African-American. Detroit experienced annual radio revenue growth of
8.4% between 1991 and 1996, and radio revenue in Detroit is expected to
continue growing at an annual pace of 7.5% between 1997 and 2001. (Source: BIA
1998 Fourth Edition)
<TABLE>
<CAPTION>
1998 FALL 1998
---- ---------
<S> <C> <C>
WDTJ-FM
Audience share (12-plus)....................................... 3.4 3.3
Audience share rank (12-plus).................................. 12 13
Audience share (18-34)......................................... 5.8 5.4
Audience share rank (18-34).................................... 4 5
Revenue share.................................................. 2.2 n/a
Revenue rank................................................... n/a n/a
</TABLE>
WDTJ-FM and WCHB-AM. On June 30, 1998, we acquired Bell Broadcasting, which
owns two radio stations, WDTJ-FM (formerly WCHB-FM) and WCHB-AM, located in the
Detroit, Michigan market and one radio station, WJZZ-AM, located in Kingsley,
Michigan. Radio One paid approximately $34.2 million in cash and the cost of
certain improvements to the stations. WDTJ-FM is a Young Urban Contemporary
station similar to our WERQ-FM in Baltimore and WKYS-FM in Washington, D.C.
WCHB-AM's facilities are currently being upgraded from 25 kW to 50 kW. WJZZ-AM
is currently off the air. We may dispose of it in the future because it is not
integral to the Bell Broadcasting operation and is located a substantial
distance from Detroit.
WWBR-FM. On December 28, 1998, we acquired Allur-Detroit for approximately
$26.5 million in cash. Allur-Detroit owns WWBR-FM licensed to Mt. Clemens,
Michigan, which is part of the Detroit MSA. Allur-Detroit's stockholders
included Syncom Venture Partners, an affiliate of one of Radio One's
stockholders, Syncom. On January 16, 1999, we changed the format of WWBR-FM to
Adult Contemporary. WWBR-FM is the first station owned by Radio One that
primarily targets a non-African-American audience.
ST. LOUIS, MISSOURI
The St. Louis market is estimated to be the 19th largest radio market in
terms of MSA population. In 1998, this market had advertising revenue estimated
to be $116.5 million, making it the 18th largest radio market in terms of
advertising revenue. St. Louis is the 16th largest African-American market with
an MSA population of approximately 2.6 million in 1996, approximately 17.2% of
which was African-American. St. Louis experienced annual radio revenue growth
of 8.8% between 1991 and 1996, and radio revenue in St. Louis is expected to
continue growing at an annual rate of 6.9% between 1997 and 2001. (Source: BIA
1998 Fourth Edition)
On November 23, 1998, we entered into an agreement to acquire the assets of
WFUN-FM, licensed to Bethalto, Illinois for approximately $13.6 million in
cash. The FCC approved our acquisition of the assets of WFUN-FM on January 26,
1999. The FCC's action became a final action on March 10, 1999.
We expect to move WFUN-FM to a broadcast tower site closer to downtown St.
Louis, reformat the station and upgrade its signal from 6 kW to 25 kW. An
application for approval of the upgrade is pending at the FCC but there can be
no assurance that FCC approval of the upgrade will be obtained.
51
<PAGE>
Cleveland, Ohio
The Cleveland market is estimated to be the 24th largest radio market in
terms of MSA population and the 23rd largest radio market in terms of
advertising revenue. In 1998, this market had advertising revenue estimated to
be $96.7 million. Cleveland is the 17th largest African-American market with an
MSA population of approximately 2.1 million, approximately 18.7% of which was
African-American. Cleveland experienced annual radio revenue growth of 7.9%
between 1991 and 1996, and radio revenue in Cleveland is expected to continue
growing at an annual pace of 6.9% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
On March 29, 1999, we entered into an asset purchase agreement with Clear
Channel Communications, Inc. to acquire WENZ-FM and WERE-AM for approximately
$20.0 million in cash.
WENZ-FM is licensed to Cleveland, Ohio, and is currently programming an
Alternative Rock format. WENZ-FM garnered 2.4 share in the Fall 1998 Arbitron
Survey of the market's 12-plus age demographic.
WERE-AM is licensed to Cleveland, Ohio, and is currently programming a News
Talk format. WERE-AM achieved a 0.4 share in the Fall 1998 Arbitron Survey of
the market's 12-plus age demographic.
Consummation of the acquisition of radio stations WENZ-FM and WERE-AM is
subject to the receipt of prior FCC approval. An application for FCC consent to
the acquisition of radio stations WENZ-FM and WERE-AM was filed on February 8,
1999. We anticipate that initial approval will be granted before July 1, 1999
but there can be no assurance that FCC approval for the acquisition will be
obtained.
Richmond, Virginia
Richmond is estimated to be the 57th largest radio market in terms of MSA
population. In 1998, this market had radio advertising revenue estimated to be
$45.8 million, making it the 46th largest radio market in terms of advertising
revenue. Richmond is the 19th largest African-American market with an MSA
population of approximately 937,000 in 1996, approximately 30.0% of which was
African-American. Richmond experienced annual radio revenue growth of 5.7%
between 1991 and 1996, and radio revenue in Richmond is expected to continue
growing at an annual rate of 6.5% between 1997 and 2001. (Source: BIA 1998
Fourth Edition)
We believe that Richmond is a particularly attractive market due to its
proximity to our headquarters in the Washington, D.C area. Due to this
proximity, we believe that we can leverage our regional advertiser
relationships and our regionally located management and on-air talent. We have
entered into agreements or letters of intent to acquire six FM and one AM radio
stations in three separate transactions. Upon completion of these acquisitions,
we believe we will be well positioned as a strong provider of urban-oriented
programming to Richmond's African-American market. We will also be the second
provider of Country programming and will have additional signals available for
other format opportunities and underserved demographics in the Richmond market.
On February 10, 1999, we entered into an asset purchase agreement to acquire
WDYL-FM, licensed to Chester, Virginia for approximately $4.6 million in cash.
WDYL-FM, currently a Religious format station, is in the Richmond, Virginia
market.
On February 26, 1999, we entered into an asset purchase agreement to acquire
WKJS-FM, licensed to Crewe, Virginia, and WSOJ-FM, licensed to Petersburg,
Virginia, for approximately $12.0 million in cash, subject to purchase price
adjustments. Both stations, currently urban format stations, are in the
Richmond, Virginia market.
WKJS-FM is a 100 kW station and generally covers the entire Richmond market.
The station changed its format from Oldies to Urban Adult Contemporary in March
1998 and has since experienced a significant ratings increase. WKJS-FM's
ratings increased from a 3.1 share in the 12-plus age demographic in the Winter
1998 Arbitron Survey to an 8.2 share in the 12-plus age demographic in the Fall
1998 Arbitron Survey. In the
52
<PAGE>
25-54 age demographic, WKJS-FM earned a 10.6 share in the Fall 1998 Arbitron
Survey, ranking it number one, tied with one other station.
WSOJ-FM, licensed to Petersburg, Virginia, primarily covers Petersburg,
located in the southern portion of the Richmond metropolitan area. A Young
Urban Contemporary station, WSOJ-FM earned a 3.2 share in the 12-plus age
demographic in the Fall 1998 Arbitron Survey. WKJS-FM and WSOJ-FM have been
operated and sold in combination for most of 1998.
Pursuant to a letter of intent dated February 23, 1999, on April , 1999,
we entered into an asset purchase agreement to purchase WCDX-FM, WPLZ-FM, WJRV-
FM and WGCV-AM, for $34.0 million. Pursuant to that agreement, we will operate
these stations under an LMA beginning in June 1999. The seller has the option
to defer the closing for up to 18 months, but we expect to complete the
acquisition no later than the second half of 2000.
WCDX-FM, a Young Urban Contemporary station licensed to Mechanicsville,
Virginia, covers the entire Richmond metropolitan area. WCDX-FM has averaged a
10.1 share of the 12-plus age demographic for the last 2 years and is currently
ranked number two overall in the 12-plus age demographic, tied with another
station with an 8.8 share, according to the Fall 1998 Arbitron Survey. WCDX-FM
is also ranked number one in the 18-34 age demographic and number four in the
25-54 age demographic.
WPLZ-FM currently programs an Urban Oldies format and earned a 4.8 share of
the 12-plus age demographic in the Fall 1998 Arbitron Survey. WPLZ-FM, licensed
to Petersburg, Virginia, primarily covers the southern Richmond metropolitan
area. The two stations have historically been sold in combination and have been
the market leaders in terms of urban radio revenue share. WJRV-FM, licensed to
Richmond, Virginia, recently changed formats from Smooth Jazz to Country, in
order to challenge WKHK-FM, the leading country radio station in Richmond.
WJRV-FM earned a 1.5 share of the 12-plus age demographic in the Fall 1998
Arbitron Survey after approximately 3 months in the Country format. WGCV-AM is
a Religious formatted station, licensed to Petersburg, Virginia, that does not
currently have any significant audience or revenue share.
Consummation of the acquisition of these radio stations in Richmond is
subject to the receipt of prior FCC approval. An application for FCC consent to
the acquisition of WDYL-FM was filed on February 18, 1999, and initial approval
of the acquisition was granted on April 7, 1999. An application for FCC consent
to the acquisitions of WKJS-FM and WSOJ-FM was filed on March 5, 1999. We
anticipate that initial approval of the acquisitions will be granted by June 1,
1999 but there can be no assurance that FCC approval of the acquisitions will
be obtained. An application for FCC consent to the acquisitions of WJRV-FM,
WCDX-FM, WPLZ-FM and WGCV-AM is expected to be filed in August 1999. We
anticipate that initial approval of the acquisitions will be granted in October
1999, but there can be no assurance that FCC approval for the acquisitions will
be obtained.
ADVERTISING REVENUE
Substantially all of our net broadcast revenue is generated from the sale of
local and national advertising for broadcast on our radio stations. Additional
net broadcast revenue is generated from network compensation payments and other
miscellaneous transactions. Local sales are made by the sales staffs located in
our markets. National sales are made by firms specializing in radio advertising
sales on the national level, in exchange for a commission from Radio One that
is based on a percentage of our net broadcast revenue from the advertising
obtained. Approximately 67.4% of our net broadcast revenue for the fiscal year
ended December 31, 1998, was generated from the sale of local advertising and
30.3% from sales to national advertisers. The balance of net broadcast revenue
is derived from network advertising, tower rental income and ticket and other
revenue related to special events hosted by Radio One.
53
<PAGE>
We believe that advertisers can reach the African-American community more
cost effectively through radio broadcasting than through newspapers or
television. Advertising rates charged by radio stations are based primarily on:
. a radio station's audience share within the demographic groups targeted
by the advertisers,
. the number of radio stations in the market competing for the same
demographic groups, and
. the supply and demand for radio advertising time.
Advertising rates are generally highest during the morning and afternoon
commuting hours.
A radio station's listenership is reflected in ratings surveys that estimate
the number of listeners tuned to a radio station and the time they spend
listening to that radio station. Each radio station's ratings are used by its
advertisers to consider advertising with the radio station, and are used by us
to chart audience growth, set advertising rates and adjust programming.
Strategic Diversification
Radio One will continue to evaluate potential radio acquisitions in African-
American markets. We are exploring opportunities in other forms of media to
apply our expertise in marketing to African-Americans. Such opportunities could
include outdoor advertising in urban environments, an urban-oriented Internet
strategy, an urban-oriented radio network, music production, publishing and
other related businesses.
We recently entered into an exclusive programming agreement with XM
Satellite Radio, Inc. to provide African-American talk and music programming to
be broadcast on XM Satellite's satellite digital audio radio service, which is
expected to be available in 2000.
We have also invested, together with most publicly-traded radio companies,
in a recent private placement for USA Digital Radio, Inc., a leading developer
of in-band on-channel digital audio broadcast technology. This technology could
enable radio broadcasters to convert from analog to digital broadcasting within
the existing frequency allocation of their AM and FM stations. In conjunction
with this investment, Alfred C. Liggins, III, the Chief Executive Officer and
President of Radio One, became a board member of USA Digital Radio, Inc.
Additionally, we have recently invested in PNE Media Holdings, LLC, a
privately-held outdoor advertising company with a presence in several of the
markets in which we own radio stations.
54
<PAGE>
Properties
The following chart sets forth the principal real property and radio related
facilities owned or leased by Radio One (including properties to be acquired
pursuant to pending acquisitions).
<TABLE>
<CAPTION>
Owned or Leased Approximate Size
Property Address Type of Facility and Use (Expiration Date) Tenant/Owner (Square Feet)
- ---------------- ------------------------ ------------------ ----------------- ----------------------
<S> <C> <C> <C> <C>
5900 Princess Garden
Parkway, Corporate Office, Leased Radio One 21,546
1st, 7th and 8th Floors WKYS-FM, WOL-AM (expires 12/31/11)
Lanham, MD WMMJ-FM, WYCB-AM
Studio
4001 Nebraska Avenue,
N.W. WKYS-FM Leased Radio One Tower and
Washington, D.C. Transmitter (expires 11/30/01) transmitter space
62 Pierce Street, N.E. WOL-AM Transmitter Leased Radio One Tower and
Washington, D.C. (expires 3/31/01) transmitter space
4400 Massachusetts
Avenue, N.W. WMMJ-FM Transmitter Leased Radio One Leased Tower space (+)
Washington, D.C. (expires 4/30/04) 200
100 St. Paul Street WWIN-AM/FM, Leased Radio One 8,000
Baltimore, MD WERQ-FM, WOLB-AM (expires 10/31/03)
Studio
Greenmount Avenue and WWIN-AM Transmitter Leased Radio One 225
29th Street (expires 8/31/01)
Baltimore, MD
(Waverly Towers)
1315 W. Hamburg Street WOLB-AM Transmitter Leased Radio One Tower and
Baltimore, MD (expires 12/31/00) transmitter space
7 St. Paul Street Satellite Dish Space Leased Radio One 200
Baltimore, MD (expires 4/22/04)
100 Old York Road WPHI-FM, Studio Leased Radio One 5,661
Jenkintown, PA (expires 10/31/03)
Domino Lane and Fowler
Street WPHI-FM Transmitter Leased Radio One Tower and
Philadelphia, PA (expires 6/29/06) transmitter space
2501 Hawkins Point Road WWIN-FM Transmitter Owned Radio One 16,800
Baltimore City, MD
2709 Boarman Avenue WERQ-FM Transmitter Owned Radio One 24,920
(4334-4338 Park Heights
Ave.)
Baltimore, MD
Walker Mill Road WYCB-AM Transmitter Leased BHI Tower and
District Heights, MD (expires 11/99) transmitter space
2994 East Grand River WDTJ-FM, WCHB-AM Leased Bell Broadcasting 3,000
Detroit, MI 48202 Studio (expires 6/30/99)
24600 Greenfield Road WDTJ-FM Transmitter Leased Bell Broadcasting Tower and
Oak Park, MI (expires 3/31/04) transmitter space
32790 Henry Huff Road WCHB-AM Office Site Owned Bell Broadcasting 80 acres
Romulus, MI
York Road WJZZ-AM Transmitter Owned Bell Broadcasting Tower and
Kingsley, MI transmitter space
Huron Township, MI WCHB-AM Transmitter Owned Bell Broadcasting 80 acres
Tyrone Cook Road #1 WHTA-FM Transmitter Leased ROA Tower and
Tyrone, GA (expires 12/6/09) transmitter space
75 Piedmont Ave. WHTA-FM Leased ROA 11,600
Atlanta, GA WAMJ-FM (expires 1/31/05)
Studio
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Owned or Leased Approximate Size
Property Address Type of Facility and Use (Expiration Date) Tenant/Owner (Square Feet)
- ---------------- ------------------------- ------------------ ------------- -------------------
<S> <C> <C> <C> <C>
1050 Crown Pointe WAMJ-FM Transmitter Leased Dogwood Tower and
Atlanta, GA (expires 8/31/01) transmitter space
850 Stephenson Highway WWBR-FM Leased Allur-Detroit 5,766
Troy, MI Studio (expires 2/1/02)
21340 Pitko Street WWBR-FM Transmitter Leased Allur-Detroit Tower and
Mt. Clemens, MI (expires 12/31/08) transmitter space
Edwardsville Township,
IL WFUN-FM Transmitter Owned Radio One 3 acres
Larimore Road WFUN-FM Transmitter Leased Radio One Tower and
St. Louis, MO transmitter space
North Royalton, OH WERE-AM Transmitter Owned Radio One Tower and
transmitter space
Newbury Township, OH WENZ-FM Transmitter Owned Radio One Tower and
transmitter space
1041 Huron Road WERE-AM/WENZ-FM Leased Radio One 10,518
Cleveland, OH Studio
4312 Old Hundred Rd. WDYL-FM Studio Leased Radio One 1,872
Chester, VA (expires 2000)
10300 Brightwood Avenue WDYL-FM Transmitter Leased Radio One Tower and
Chesterfield, VA (expires 2014) transmitter space
6001 Wilkinson Road WKJS-FM/WSOJ-FM Leased Radio One
Richmond, VA Studio (expires 2000)
East Side Rt. 608 WKJS-FM Transmitter Owned Radio One Tower and
Nottoway County, VA transmitter space
3321 Johnson Rd. WSOJ-FM Transmitter Leased Radio One Tower and
Petersburg, VA (expires 10/31/02) transmitter space
2809 Emerywood Parkway WCDX-FM, WPLZ-FM and Leased Radio One 13,500
Richmond, VA WJRV-FM Main Studio (expires 4/30/03)
3245 Basie Road WCDX-FM Main Transmitter Leased Radio One Tower and
Richmond, VA and WPLZ-FM Studio transmitter space
Transmitter Link Location (expires 12/31/19)
8216 Meadowbridge Road WCDX-FM Auxillary Radio One Tower and
Mechanicsville, VA Transmitter Leased transmitter space
701 German School Road WJRV-FM Main Transmitter Leased Radio One Tower and
Richmond, VA transmitter space
Hare & Culpepper Streets WPLZ-FM and WGCV-AM Owned Radio One Tower and
Petersburg, VA Main Transmitter transmitter space
</TABLE>
The real property owned or leased by us is the subject of a security
interest held pursuant to the terms of our bank credit facility.
We own substantially all of our other equipment, consisting principally of
studio equipment and office equipment. The towers, antennae and other
transmission equipment used by our radio stations are generally in good
condition, although opportunities to upgrade facilities are periodically
reviewed.
We believe that the facilities for our radio stations and office space in
Washington, D.C., Baltimore, Atlanta, Philadelphia, Detroit, and Richmond are
generally suitable and of adequate size for their current and intended purposes
other than for routine modifications and expansions. We believe we will be able
to obtain suitable facilities for our radio stations in St. Louis and Cleveland
on reasonable terms.
56
<PAGE>
Competition
The radio broadcasting industry is highly competitive. Radio One's stations
compete for audiences and advertising revenue with other radio stations and
with other media such as television, newspapers, direct mail and outdoor
advertising. Audience ratings and advertising revenue are subject to change and
any adverse change in a market could adversely affect our net broadcast revenue
in that market. If a competing station converts to a format similar to that of
one of our stations, or if one of our competitors strengthens its operations,
our stations could suffer a reduction in ratings and advertising revenue. Other
radio companies which are larger and have more resources may also enter markets
where we operate. Although we believe our stations are well positioned to
compete, we cannot assure you that our stations will maintain or increase their
current ratings or advertising revenue.
The radio broadcasting industry is also subject to rapid technological
change, evolving industry standards and the emergence of new media
technologies. Several new media technologies are being developed, including the
following:
. audio programming by cable television systems, direct broadcast
satellite systems, Internet content providers and other digital audio
broadcast formats;
. satellite digital audio radio service, which could result in the
introduction of several new satellite radio services with sound quality
equivalent to that of compact discs; and
. in-band on-channel digital radio, which could provide multi-channel,
multi-format digital radio services in the same band width currently
occupied by traditional AM and FM radio services.
We recently entered into a programming agreement with a satellite digital
audio radio service and have also invested in a developer of digital audio
broadcast technology. However, we cannot assure you that these arrangements
will be successful or enable us to adapt effectively to these new media
technologies. We also cannot assure you that we will continue to have the
resources to acquire other new technologies or to introduce new services that
could compete with other new technologies.
Antitrust
An important part of our growth strategy is the acquisition of additional
radio stations. After the passage of the Telecommunications Act of 1996, the
Justice Department has become more aggressive in reviewing proposed
acquisitions of radio stations and radio station networks. The Justice
Department is particularly aggressive when the proposed buyer already owns one
or more radio stations in the market of the station it is seeking to buy.
Recently, the Justice Department has challenged a number of radio broadcasting
transactions. Some of those challenges ultimately resulted in consent decrees
requiring, among other things, divestitures of certain stations. In general,
the Justice Department has more closely scrutinized radio broadcasting
acquisitions that result in local market shares in excess of 40% of radio
advertising revenue. Similarly, the FCC staff has announced new procedures to
review proposed radio broadcasting transactions even if the proposed
acquisition otherwise complies with the FCC's ownership limitations. In
particular, the FCC may invite public comment on proposed radio transactions
that the FCC believes, based on its initial analysis, may present ownership
concentration concerns in a particular local radio market.
Federal Regulation of Radio Broadcasting
The radio broadcasting industry is subject to extensive and changing
regulation by the FCC of programming, technical operations, employment and
other business practices. The FCC regulates radio broadcast stations pursuant
to the Communications Act. The Communications Act permits the operation of
radio broadcast stations only in accordance with a license issued by the FCC
upon a finding that the grant of a license would serve the public interest,
convenience and necessity. The Communications Act provides for the FCC to
exercise its licensing authority to provide a fair, efficient and equitable
distribution of broadcast service throughout the United States. Among other
things, the FCC:
. assigns frequency bands for radio broadcasting;
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. determines the particular frequencies, locations and operating power of
radio broadcast stations;
. issues, renews, revokes and modifies radio broadcast station licenses;
. establishes technical requirements for certain transmitting equipment
used by radio broadcast stations;
. adopts and implements regulations and policies that directly or
indirectly affect the ownership, operation, program content and
employment and business practices of radio broadcast stations; and
. has the power to impose penalties, including monetary forfeitures, for
violations of its rules and the Communications Act.
The Communications Act prohibits the assignment of an FCC license, or other
transfer of control of an FCC licensee, without the prior approval of the FCC.
In determining whether to grant requests for consents to assignments or
transfers, and in determining whether to grant or renew a radio broadcast
license, the FCC considers a number of factors pertaining to the licensee (and
any proposed licensee), including restrictions on foreign ownership, compliance
with FCC media ownership limits and other FCC rules, licensee "character" and
compliance with the Anti-Drug Abuse Act of 1988.
The following is a brief summary of certain provisions of the Communications
Act and specific FCC rules and policies. This summary does not purport to be
complete and is qualified in its entirety by the text of the Communications
Act, the FCC's rules and regulations, and the rulings of the FCC. You should
refer to the Communications Act and these FCC rules and rulings for further
information concerning the nature and extent of federal regulation of radio
broadcast stations.
A licensee's failure to observe the requirements of the Communications Act
or FCC rules and policies may result in the imposition of various sanctions,
including admonishment, fines, the grant of renewal terms of less than eight
years, the grant of a license with conditions or, for particularly egregious
violations, the denial of a license renewal application, the revocation of an
FCC license or the denial of FCC consent to acquire additional broadcast
properties.
Congress and the FCC have had under consideration, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of Radio One's radio stations, result in the loss of audience
share and advertising revenue for our radio broadcast stations or affect our
ability to acquire additional radio broadcast stations or finance such
acquisitions. Such matters may include:
. changes to the license authorization and renewal process;
. proposals to impose spectrum use or other fees on FCC licensees;
. auction of new broadcast licenses;
. changes to the FCC's equal employment opportunity regulations and other
matters relating to involvement of minorities and women in the
broadcasting industry;
. proposals to change rules relating to political broadcasting including
proposals to grant free air time to candidates, and other changes
regarding program content;
. proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages;
. technical and frequency allocation matters, including creation of a new
low power radio broadcast service;
. the implementation of digital audio broadcasting on both a satellite and
terrestrial basis;
. changes in broadcast cross-interest, multiple ownership, foreign
ownership, cross-ownership and ownership attribution policies;
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. proposals to allow telephone companies to deliver audio and video
programming to homes in their service areas; and
. proposals to alter provisions of the tax laws affecting broadcast
operations and acquisitions.
We cannot predict what changes, if any, might be adopted, nor can we
predict what other matters might be considered in the future, nor can we judge
in advance what impact, if any, the implementation of any particular proposals
or changes might have on our business.
FCC Licenses
The Communications Act provides that a broadcast station license may be
granted to any applicant if the public interest, convenience and necessity
will be served thereby, subject to certain limitations. In making licensing
determinations, the FCC considers an applicant's legal, technical, financial
and other qualifications. The FCC grants radio broadcast station licenses for
specific periods of time and, upon application, may renew them for additional
terms. Under the Communications Act, radio broadcast station licenses may be
granted for a maximum term of eight years.
Generally, the FCC renews radio broadcast licenses without a hearing upon a
finding that:
. the radio station has served the public interest, convenience and
necessity;
. there have been no serious violations by the licensee of the
Communications Act or FCC rules and regulations; and
. there have been no other violations by the licensee of the
Communications Act or FCC rules and regulations which, taken together,
indicate a pattern of abuse.
After considering these factors, the FCC may grant the license renewal
application with or without conditions, including renewal for a term less than
the maximum otherwise permitted, or hold an evidentiary hearing.
In addition, the Communications Act authorizes the filing of petitions to
deny a license renewal application during specific periods of time after a
renewal application has been filed. Interested parties, including members of
the public, may use such petitions to raise issues concerning a renewal
applicant's qualifications. If a substantial and material question of fact
concerning a renewal application is raised by the FCC or other interested
parties, or if for any reason the FCC cannot determine that grant of the
renewal application would serve the public interest, convenience and
necessity, the FCC will hold an evidentiary hearing on the application. If as
a result of an evidentiary hearing the FCC determines that the licensee has
failed to meet the requirements specified above and that no mitigating factors
justify the imposition of a lesser sanction, then the FCC may deny a license
renewal application. Only after a license renewal application is denied will
the FCC accept and consider competing applications for the vacated frequency.
Also, during certain periods when a renewal application is pending, the
transferability of the applicant's license may be restricted. Historically,
our licenses have been renewed without any conditions or sanctions imposed.
However, there can be no assurance that the licenses of each of our stations
will be renewed or will be renewed without conditions or sanctions.
The FCC classifies each AM and FM radio station. An AM radio station
operates on either a clear channel, regional channel or local channel. A clear
channel is one on which AM radio stations are assigned to serve wide areas,
particularly at night. Clear channel AM radio stations are classified as
either: (1) Class A radio stations, which operate unlimited time and are
designed to render primary and secondary service over an extended area, or (2)
Class B radio stations, which operate unlimited time and are designed to
render service only over a primary service area. Class D radio stations, which
operate either daytime, or unlimited time with low nighttime power, may
operate on the same frequencies as clear channel radio stations. A regional
channel is one on which Class B and Class D AM radio stations may operate and
serve primarily a principal center of population and the rural areas
contiguous to it. A local channel is one on which AM radio stations operate
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unlimited time and serve primarily a community and the suburban and rural areas
immediately contiguous to it. A Class C AM radio station operates on a local
channel and is designed to render service only over a primary service area that
may be reduced as a consequence of interference.
The minimum and maximum facilities requirements for an FM radio station are
determined by its class. Possible FM class designations depend upon the
geographic zone in which the transmitter of the FM radio station is located. In
general, commercial FM radio stations are classified as follows, in order of
increasing power and antenna height: Class A, B1, C3, B, C2, C1 or C radio
stations. The FCC recently has proposed to divide Class C stations into two
subclasses based on antenna height. Stations not meeting the minimum height
requirement within a three-year transition period would be downgraded
automatically to the new Class C0 category.
The following table sets forth information with respect to each of our radio
stations, including the radio stations we have agreed to purchase in St. Louis,
Cleveland and Richmond. A broadcast station's market may be different from its
community of license. "ERP" refers to the effective radiated power of an FM
radio station. "HAAT" refers to the antenna height above average terrain of an
FM radio station. "AI" refers to the above insulator measurement of an AM radio
station. The coverage of an AM radio station is chiefly a function of the power
of the radio station's transmitter, less dissipative power losses and any
directional antenna adjustments. For FM radio stations, signal coverage area is
chiefly a function of the ERP of the radio station's antenna and the HAAT of
the radio station's antenna. The height of an AM radio station's antenna is
measured by reference to AI and the height of an FM radio station's antenna is
measured by reference to HAAT.
<TABLE>
<CAPTION>
HAAT
ERP (FM) (FM)
POWER AI
(AM) (AM) EXPIRATION
STATION YEAR OF FCC IN IN OPERATING DATE OF FCC
MARKET CALL LETTERS ACQUISITION CLASS KILOWATTS METERS FREQUENCY LICENSE
- ------ ------------ ----------- ----- --------- ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. WOL-AM 1980 C 1.0 52.1 1450 kHz 10/01/2003
WMMJ-FM 1987 A 2.9 146.0 102.3 MHz 10/01/2003
WKYS-FM 1995 B 24.0 215.0 93.9 MHz 10/01/2003
WYCB-AM 1998 C 1.0 50.9 1340 kHz 10/01/2003
Baltimore WWIN-AM 1992 C 1.0 61.0 1400 kHz 10/01/2003
WWIN-FM 1992 A 3.0 91.0 95.9 MHz 10/01/2003
WOLB-AM 1993 D 1.0 85.4 1010 kHz 10/01/2003
WERQ-FM 1993 B 37.0 174.0 92.3 MHz 10/01/2003
Atlanta WHTA-FM 1999 C3 7.9 175.0 97.5 MHz 04/01/2004
WAMJ-FM 1999 C3 25.0 98.0 107.5 MHz 04/01/2004
Philadelphia WPHI-FM 1997 A 0.3(/1/) 305.0 103.9 MHz 08/01/2006
Detroit WDTJ-FM 1998 B 20.0 221.0 105.9 MHz 10/01/2004
WCHB-AM 1998 B 25.0(/2/) 49.4 1200 kHz 10/01/2004
WJZZ-AM 1998 D 50.0 59.7 1210 kHz 10/01/2004
WWBR-FM 1998 B 50.0 152.0 102.7 MHz 10/01/2004
St. Louis WFUN-FM 1999 A 6.0 100.0 95.5 MHz 12/01/2003
Cleveland WERE-AM 1999 B 5.0 128.0 1300 kHz 10/01/2004
WENZ-FM 1999 B 16.0 272.0 107.9 MHz 10/01/2004
Richmond WDYL-FM 1999 A 6.0(/3/) 100.0 101.1 MHz 10/01/2003
WKJS-FM 1999 C1 100.0 299.0 104.7 MHz 10/01/2003
WSOJ-FM 1999 A 4.7 113.0 100.3 MHz 10/01/2003
WCDX-FM 1999 B1 4.5 235.0 92.1 MHz 10/01/2003
WPLZ-FM 1999 A 6.0 100.0 99.3 MHz 10/01/2003
WJRV-FM 1999 A 2.3 162.0 105.7 MHz 10/01/2003
WGCV-AM 1999 C 1.0 122.0 1240 kHz 10/01/2003
</TABLE>
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- --------
(1) WPHI-FM operates with facilities equivalent to 3 kW at 100 meters.
(2) On March 4, 1999, we began testing with a power of up to 50 kW day and 15
kW night.
(3)An application for a license to operate at 6 kW is pending.
Ownership Matters. The Communications Act requires prior approval of the FCC
for the assignment of a broadcast license or the transfer of control of a
corporation or other entity holding a license. In determining whether to
approve an assignment of a radio broadcast license or a transfer of control of
a broadcast licensee, the FCC considers, among other things:
. the financial and legal qualifications of the prospective assignee or
transferee, including compliance with FCC restrictions on non-U.S.
citizen or entity ownership and control;
. compliance with FCC rules limiting the common ownership of certain
"attributable" interests in broadcast and newspaper properties;
. the history of compliance with FCC operating rules; and
. the "character" qualifications of the transferee or assignee and the
individuals or entities holding "attributable" interests in them.
Applications to the FCC for assignments and transfers are subject to petitions
to deny by interested parties.
To obtain the FCC's prior consent to assign or transfer a broadcast license,
appropriate applications must be filed with the FCC. If the application to
assign or transfer the license involves a substantial change in ownership or
control of the licensee, for example, the transfer of more than 50% of the
voting stock, the application must be placed on public notice for a period of
30 days during which petitions to deny the application may be filed by
interested parties, including members of the public. Informal objections may be
filed any time up until the FCC acts upon the application. If an assignment
application does not involve new parties, or if a transfer of control
application does not involve a "substantial change" in ownership or control, it
is a pro forma application, which is not subject to the public notice and 30-
day petition to deny procedure. The pro forma application is nevertheless
subject to informal objections that may be filed any time up until the FCC acts
on the application. If the FCC grants an assignment or transfer application,
interested parties have 30 days from public notice of the grant to seek
reconsideration of that grant. The FCC usually has an additional ten days to
set aside such grant on its own motion. When ruling on an assignment or
transfer application, the FCC is prohibited from considering whether the public
interest might be served by an assignment or transfer to any party other than
the assignee or transferee specified in the application.
Under the Communications Act, a broadcast license may not be granted to or
held by any corporation that has more than 20% of its capital stock owned or
voted by non-U.S. citizens or entities or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations. Furthermore,
the Communications Act provides that no FCC broadcast license may be granted to
or held by any corporation directly or indirectly controlled by any other
corporation of which more than 25% of its capital stock is owned of record or
voted by non-U.S. citizens or entities or their representatives, or foreign
governments or their representatives or by non-U.S. corporations, if the FCC
finds the public interest will be served by the refusal or revocation of such
license. These restrictions apply in modified form to other forms of business
organizations, including partnerships and limited liability companies. Thus,
the licenses for Radio One's stations could be revoked if more than 25% of
Radio One's outstanding capital stock is issued to or for the benefit of non-
U.S. citizens.
The FCC generally applies its other broadcast ownership limits to
"attributable" interests held by an individual, corporation, partnership or
other association or entity, including limited liability companies. In the
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case of a corporation holding broadcast licenses, the interests of officers,
directors and those who, directly or indirectly have the right to vote five
percent or more of the stock of a licensee corporation are generally deemed
attributable interests, as are positions as an officer or director of a
corporate parent of a broadcast licensee. The FCC treats all partnership
interests as attributable, except for those limited partnership interests that
under FCC policies are considered "insulated" from "material involvement" in
the management or operation of the media-related activities of the partnership.
The FCC currently treats limited liability companies like limited partnerships
for purposes of attribution. Stock interests held by insurance companies,
mutual funds, bank trust departments and certain other passive investors that
hold stock for investment purposes only become attributable with the ownership
of ten percent or more of the voting stock of the corporation holding broadcast
licenses.
To assess whether a voting stock interest in a direct or an indirect parent
corporation of a broadcast licensee is attributable, the FCC uses a
"multiplier" analysis in which non-controlling voting stock interests are
deemed proportionally reduced at each non-controlling link in a multi-
corporation ownership chain. A time brokerage agreement with another radio
station in the same market creates an attributable interest in the brokered
radio station as well for purposes of the FCC's local radio station ownership
rules, if the agreement affects more than 15% of the brokered radio station's
weekly broadcast hours.
Debt instruments, non-voting stock, options and warrants for voting stock
that have not yet been exercised, insulated limited partnership interests where
the limited partner is not "materially involved" in the media-related
activities of the partnership, and minority voting stock interests in
corporations where there is a single holder of more than 50% of the outstanding
voting stock whose vote is sufficient to affirmatively direct the affairs of
the corporation, generally do not subject their holders to attribution.
However, the FCC's rules also specify other exceptions to these general
principles for attribution. However, the FCC is currently evaluating whether
to:
. raise the benchmark for voting stock from five to ten percent;
. raise the benchmark for passive investors holding voting stock from ten
to twenty percent;
. continue the single 50% stockholder exception; and/or
. attribute non-voting stock or perhaps only when combined with other
rights such as voting shares or contractual relationships.
More recently, the FCC has solicited comment on proposed rules that would:
. treat an otherwise non-attributable ownership equity or debt interest in
a licensee as an attributable interest where the interest holder is a
program supplier or the owner of a broadcast station in the same market
and the equity and/or debt holding is greater than a specified benchmark
and
. in certain circumstances, treat the licensee of a broadcast station that
sells advertising time of another station in the same market pursuant to
a joint sales agreement as having an attributable interest in the
station whose advertising is being sold.
Communications Act and FCC rules generally restrict ownership, operation or
control of, or the common holding of attributable interests in:
. radio broadcast stations above certain limits servicing the same local
market;
. a radio broadcast station and a television broadcast station servicing
the same local market; and
. a radio broadcast station and a daily newspaper serving the same local
market.
These rules include specific signal contour overlap standards to determine
compliance, and the FCC defined market will not necessarily be the same market
used by Arbitron or other surveys, or for purposes of the HSR Act. Under these
"cross-ownership" rules, we, absent waivers, would not be permitted to own a
radio broadcast station and acquire an attributable interest in any daily
newspaper or television
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broadcast station, other than a low-powered television station, in the
same market where we then owned any radio broadcast station. Our
stockholders, officers or directors, absent a waiver, may not hold an
attributable interest in a daily newspaper or television broadcast
station in those same markets.
The FCC is currently reviewing the ban on common ownership of a radio
station and a daily newspaper in the same market. The FCC's rules provide for
the liberal grant of a waiver of the rule prohibiting common ownership of radio
and television stations in the same geographic market in the top 25 television
markets if certain conditions are satisfied, and the FCC will consider waivers
in other markets under more restrictive standards. The FCC is reviewing its ban
on the common ownership of a radio station and a television station or
newspaper including extending the policy of liberal waivers of common ownership
of radio and television stations to the top 50 television markets.
Although current FCC nationwide radio broadcast ownership rules allow one
entity to own, control or hold attributable interests in an unlimited number of
FM radio stations and AM radio stations nationwide, the Communications Act and
the FCC's rules limit the number of radio broadcast stations in local markets
in which a single entity may own an attributable interest as follows:
. In a radio market with 45 or more commercial radio stations, a party may
own, operate or control up to eight commercial radio stations, not more
than five of which are in the same service (AM or FM).
. In a radio market with between 30 and 44 (inclusive) commercial radio
stations, a party may own, operate or control up to seven commercial
radio stations, not more than four of which are in the same service (AM
or FM).
. In a radio market with between 15 and 29 (inclusive) commercial radio
stations, a party may own, operate or control up to six commercial radio
stations, not more than four of which are in the same service (AM or
FM).
. In a radio market with 14 or fewer commercial radio stations, a party
may own, operate or control up to five commercial radio stations, not
more than three of which are in the same service (AM or FM), except that
a party may not own, operate, or control more than 50 percent of the
radio stations in such market.
The FCC is currently reviewing the effect of local market ownership
limitations on competition and diversity in the broadcast industry to determine
if a recommendation to repeal or modify the rules should be made to Congress.
The FCC staff has also notified the public of its intention to review
transactions that comply with numerical ownership limits but that might involve
undue concentration of market share.
Because of these multiple and cross-ownership rules, if a stockholder,
officer or director of Radio One holds an "attributable" interest in Radio One,
such stockholder, officer or director may violate the FCC's rules if such
person or entity also holds or acquires an attributable interest in other
television, radio stations or daily newspapers, depending on their number and
location. If an attributable stockholder, officer or director of Radio One
violates any of these ownership rules, we may be unable to obtain from the FCC
one or more authorizations needed to conduct our radio station business and may
be unable to obtain FCC consents for certain future acquisitions. As long as
one person or entity holds more than 50% of the voting power of the common
stock of Radio One where the vote of such person or entity is sufficient to
affirmatively direct the affairs of Radio One, another stockholder, unless
serving as an officer and/or director, generally would not hold an attributable
interest in Radio One. However, as described above, the FCC is currently
evaluating whether to continue the exception for a single majority stockholder
of more than 50% of a licensee's voting stock. As of March 31, 1999, no single
stockholder held more than 50% of the total voting power of our common stock.
Under its "cross-interest" policy, the FCC considers "meaningful"
relationships among competing media outlets that serve "substantially the same
area," even if the ownership rules do not specifically prohibit the
relationship. Under this policy, the FCC may consider whether to prohibit one
party from holding an
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attributable interest and a substantial non-attributable interest (including
non-voting stock, limited partnership and limited liability company interests)
in a media outlet in the same market, or from entering into a joint venture or
having common key employees with competitors. The cross-interest policy does
not necessarily prohibit all of these interests, but requires that the FCC
consider whether, in a particular market, the "meaningful" relationships
between competitors could have a significant adverse effect upon economic
competition and program diversity. In a rule making proceeding concerning the
attribution rules, the FCC has sought comment on, among other things, (1)
whether the cross-interest policy should be applied only in smaller markets,
and (2) whether non-equity financial relationships, such as debt, when combined
with multiple business relationships, such as local marketing agreements or
joint sales arrangements, raise concerns under the cross-interest policy.
Programming and Operations. The Communications Act requires broadcasters to
serve the "public interest." Since the late 1980s, the FCC has relaxed or
eliminated many of the more formalized procedures it developed to promote the
broadcast of certain types of programming responsive to the needs of a radio
station's community of license. Nevertheless, a broadcast licensee continues to
be required to present programming in response to community problems, needs and
interests and to maintain certain records demonstrating its responsiveness. The
FCC will consider complaints from listeners about a broadcast station's
programming when it evaluates the licensee's renewal application, but
listeners' complaints also may be filed and considered at any time. Stations
also must pay regulatory and application fees, and follow various FCC rules
that regulate, among other things, political advertising, the broadcast of
obscene or indecent programming, sponsorship identification, the broadcast of
contests and lotteries and technical operation.
The FCC has always required that licensees not discriminate in hiring
practices, develop and implement programs designed to promote equal employment
opportunities and submit reports to the FCC on these matters annually and in
connection with each license renewal application. The FCC's employment rules,
as they related to outreach efforts for recruitment of minorities, however,
were recently struck down as unconstitutional by the U.S. Court of Appeals for
the D.C. Circuit. The FCC has proposed revising the rules to adopt outreach
efforts that are constitutional.
The FCC rules also prohibit a broadcast licensee from simulcasting more than
25% of its programming on another radio station in the same broadcast service
(that is, AM/AM or FM/FM). The simulcasting restriction applies if the licensee
owns both radio broadcast stations or owns one and programs the other through a
local marketing agreement, provided that the contours of the radio stations
overlap in a certain manner.
From time to time, complaints may be filed against Radio One's radio
stations alleging violations of these or other rules. In addition, the FCC
recently has proposed to establish a system of random audits to ensure and
verify licensee compliance with FCC rules and regulations. Failure to observe
these or other rules and policies can result in the imposition of various
sanctions, including fines or conditions, the grant of "short" (less than the
maximum eight year) renewal terms or, for particularly egregious violations,
the denial of a license renewal application or the revocation of a license.
Local Marketing Agreements. Often radio stations enter into LMAs or time
brokerage agreements. These agreements take various forms. Separately owned and
licensed radio stations may agree to function cooperatively in programming,
advertising sales and other matters, subject to compliance with the antitrust
laws and the FCC's rules and policies, including the requirement that the
licensee of each radio station maintain independent control over the
programming and other operations of its own radio station. One type of time
brokerage agreement is a programming agreement between two separately owned
radio stations that serve a common service area whereby the licensee of one
radio station programs substantial portions of the broadcast day of the other
licensee's radio station, subject to ultimate control by the radio station
licensee, and sells advertising time during these program segments. The FCC has
held that such agreements do not violate the Communications Act as long as the
licensee of the radio broadcast station that is being substantially programmed
by another entity (1) remains ultimately responsible for, and maintains control
over, the operation
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of its radio station, and (2) otherwise ensures the radio station's compliance
with applicable FCC rules and policies.
A radio broadcast station that brokers time on another radio broadcast
station or enters into a time brokerage agreement with a radio broadcast
station in the same market will be considered to have an attributable ownership
interest in the brokered radio station for purposes of the FCC's local
ownership rules if the time brokerage arrangement covers more than 15% of the
brokered station's weekly broadcast hours. As a result, a radio broadcast
station may not enter into a time brokerage agreement that allows it to program
more than 15% of the broadcast time, on a weekly basis, of another local radio
broadcast station that it could not own under the FCC's local multiple
ownership rules. The FCC is considering whether it should treat as attributable
multiple business arrangements among local radio stations such as a joint sales
arrangement accompanied by debt financing. Also, as described above, FCC rules
prohibit a radio broadcast station from simulcasting more than 25% of its
programming on another radio broadcast station in the same broadcast service
(that is, AM/AM or FM/FM) where the two radio stations serve substantially the
same geographic area, whether the licensee owns both radio stations or owns one
radio station and programs the other through a time brokerage agreement. Thus
far, the FCC has not considered what relevance, if any, a time brokerage
agreement may have upon its evaluation of a licensee's performance at renewal
time.
Joint Sales Agreements. Over the past few years, a number of radio stations
have entered into cooperative arrangements commonly known as joint sales
agreements or JSAs. While these agreements may take varying forms, under the
typical JSA, a station licensee obtains, for a fee, the right to sell
substantially all of the commercial advertising on a separately-owned and
licensed station in the same market. The typical JSA also customarily involves
the provision by the selling party of certain sales, accounting and services to
the station whose advertising is being sold. The typical JSA is distinct from a
local marketing agreement in that a JSA normally does not involve programming.
The FCC has determined that issues of joint advertising sales should be left
to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which
another licensee sells time under a JSA are not deemed by the FCC to be an
attributable interest of that licensee. However, in connection with its ongoing
rulemaking proceedings concerning the attribution rules, the FCC is considering
whether JSAs should be considered attributable interests or within the scope of
the FCC's cross-interest policy, particularly when JSAs contain provisions for
the supply of programming services and/or other elements typically associated
with local marketing agreements.
RF Radiation. In 1985, the FCC adopted rules based on a 1982 American
National Standards Institute ("ANSI") standard regarding human exposure to
levels of radio frequency ("RF") radiation. These rules require applicants for
renewal of broadcast licenses or modification of existing licenses to inform
the FCC at the time of filing such applications whether an existing broadcast
facility would expose people to RF radiation in excess of certain limits. In
1992, ANSI adopted a new standard for RF exposure that, in some respects, was
more restrictive in the amount of environmental RF exposure permitted. The FCC
has since adopted more restrictive radiation limits which became effective
October 15, 1997, and which are based in part on the revised ANSI standard.
Digital Audio Radio Service. The FCC allocated spectrum to a new technology,
digital audio radio service ("DARS"), to deliver satellite-based audio
programming to a national or regional audience and issued regulations for a
DARS service in early 1997. DARS may provide a medium for the delivery by
satellite or terrestrial means of multiple new audio programming formats with
compact disc quality sound to local and national audiences. The nationwide
reach of satellite DARS could allow niche programming aimed at diverse
communities that Radio One is targeting. It is not known at this time whether
this technology also may be used in the future by existing radio broadcast
stations either on existing or alternate broadcasting frequencies. Two
companies that hold licenses for authority to offer multiple channels of
digital, satellite-delivered S-Band aural services could compete with
conventional terrestrial radio broadcasting. The licensees will be permitted to
sell
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advertising and lease channels in these media. The FCC's rules require that
these licensees launch and begin operating at least one space station by 2001
and be fully operational by 2003.
The FCC has established a new Wireless Communications Service ("WCS") in the
2305-2320 and 2345-2360 MHz bands (the "WCS Spectrum") and awarded licenses.
Licensees are generally permitted to provide any fixed, mobile, radio location
services, or digital satellite radio service using the WCS Spectrum.
Implementation of DARS would provide an additional audio programming service
that could compete with Radio One's radio stations for listeners, but the
effect upon Radio One cannot be predicted.
These satellite radio services use technology that may permit higher sound
quality than is possible with conventional AM and FM terrestrial radio
broadcasting.
Low Power Radio Broadcast Service. The FCC recently adopted a Notice of
Proposed Rulemaking seeking public comment on a proposal to establish two
classes of a low power radio service both of which would operate in the
existing FM radio band: a primary class with a maximum operating power of 1 kW
and a secondary class with a maximum power of 100 watts. These proposed low
power radio stations would have limited service areas of 8.8 miles and 3.5
miles, respectively. The FCC also has sought public comment on the advisability
of establishing a very low power secondary "microbroadcasting" service with a
maximum power limit of one to ten watts. These "microradio" stations would have
a service radius of only one to two miles. The service would target "niche
markets" and be possibly supported by advertising revenue. Existing licensees,
like Radio One, would be prohibited from owning or having a relationship with
these new stations. Implementation of a low power radio service or
microbroadcasting would provide an additional audio programming service that
could compete with Radio One's radio stations for listeners, but the effect
upon Radio One cannot be predicted.
Subsidiaries and Related Entities
Radio One has title to most of the assets used in the operations of our
radio stations. The FCC licenses for the radio stations in all cases are or
will be held by direct or indirect wholly-owned subsidiaries of Radio One. In
the case of all of the Baltimore stations, three of the Washington, D.C.
stations, the Philadelphia station, the St. Louis station, the Cleveland
stations and the Richmond stations, the FCC licenses are or will be held by
Radio One Licenses, Inc., a Delaware corporation and a wholly-owned Restricted
Subsidiary of Radio One. Radio One Licenses, Inc. holds no other material
assets. WYCB Acquisition Corporation, a Delaware corporation and a wholly-owned
Unrestricted Subsidiary, holds title to all of the outstanding capital stock of
BHI, a District of Columbia corporation and an Unrestricted Subsidiary. The FCC
licenses for WYCB-AM are held by BHI which also holds the assets used in the
operation of that station. Bell Broadcasting, a Michigan corporation and a
wholly-owned Restricted Subsidiary, holds the assets used in the operation of
WCHB-AM, WDTJ-FM and WJZZ-AM. Bell Broadcasting holds title to all of the
outstanding capital stock of Radio One of Detroit, Inc., a Delaware corporation
and a Restricted Subsidiary. The FCC licenses for WCHB-AM, WDTJ-FM and WJZZ-AM
are held by Radio One of Detroit, Inc. Radio One of Detroit, Inc. holds no
other material assets.
Allur-Detroit, a Delaware corporation and a wholly-owned Restricted
Subsidiary, holds the assets used in the operation of station WWBR-FM. Allur-
Detroit holds title to all of the outstanding capital stock of Allur Licenses,
Inc., a Delaware corporation and a Restricted Subsidiary. The FCC licenses for
WWBR-FM are held by Allur Licenses, Inc. Allur Licenses, Inc. holds no other
material assets.
ROA, a Delaware corporation and a wholly-owned Restricted Subsidiary, holds
the assets used in the operation of station WHTA-FM and some assets used in the
operation of station WAMJ-FM. ROA holds title to all of the outstanding capital
stock of ROA Licenses, Inc., a Delaware corporation and a Restricted
Subsidiary. The FCC licenses for WHTA-FM are held by ROA Licenses, Inc. ROA
Licenses, Inc. holds no other material assets. Dogwood, a Delaware corporation
and a wholly-owned Restricted Subsidiary, owns some of the assets used in the
operation of station WAMJ-FM and all of the outstanding capital stock of
Dogwood
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Licenses, Inc., a Delaware corporation and a Restricted Subsidiary. The FCC
licenses for WAMJ-FM are held by Dogwood Licenses, Inc. Dogwood Licenses, Inc.,
holds no other material assets.
EMPLOYEES
As of March 31, 1999, we employed approximately 450 people. Our employees
are not unionized. We have not experienced any work stoppages and believe
relations with our employees are satisfactory. Each radio station has its own
on-air personalities and clerical staff. However, in an effort to control
broadcast and corporate expenses, we centralize certain radio station functions
by market location. For example, in each of our markets we employ one General
Manager who is responsible for all of our radio stations located in such market
and our Vice President of Programming oversees programming for all of our
urban-oriented FM radio stations.
LEGAL PROCEEDINGS
We are involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of our business. We believe the resolution of
such matters will not have a material adverse effect on our business, financial
condition or results of operations.
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MANAGEMENT
Directors, Executive Officers and Other Significant Personnel
The names, ages and positions of the directors, executive officers and other
significant personnel of Radio One are set forth in the table below. All
directors serve for the term for which they are elected or until their
successors are duly elected and qualified or until death, retirement,
resignation or removal.
<TABLE>
<CAPTION>
Age as of
Name March 31, 1999 Position
- ------------------------ -------------- -----------------------------------------------------------
<S> <C> <C>
Catherine L. Hughes..... 51 Chairperson of the Board of Directors and Secretary
Alfred C. Liggins, III.. 34 Chief Executive Officer, President, Treasurer, and Director
Scott R. Royster........ 34 Executive Vice President and Chief Financial Officer
Mary Catherine Sneed.... 47 Chief Operating Officer
Linda J. Eckard......... 41 General Counsel
Steve Hegwood........... 37 Vice President of Programming
Leslie J. Hartmann...... 37 Corporate Controller
Terry L. Jones.......... 52 Director
Brian W. McNeill........ 43 Director
Larry D. Marcus......... 50 Director
</TABLE>
Ms. Hughes has been Chairperson of the board of directors and Secretary of
Radio One since 1980, and was Chief Executive Officer of Radio One from 1980 to
1997. She was one of the founders of Radio One's predecessor company in 1980.
Since 1980, Ms. Hughes has worked in various capacities for Radio One including
President, General Manager, General Sales Manager and talk show host. She began
her career in radio as General Sales Manager of WHUR-FM, the Howard University-
owned, urban-contemporary radio station. Ms. Hughes is also the mother of Mr.
Liggins, Radio One's Chief Executive Officer, President, Treasurer and
director.
Mr. Liggins has been Chief Executive Officer since 1997, and President,
Treasurer and a director of Radio One since 1989. Mr. Liggins joined Radio One
in 1985 as an Account Manager at WOL-AM. In 1987, he was promoted to General
Sales Manager and promoted again in 1988 to General Manager overseeing Radio
One's Washington, D.C. operations. After becoming President, Mr. Liggins
engineered Radio One's expansion into other markets. Mr. Liggins is a graduate
of the Wharton School of Business/Executive M.B.A. Program. Mr. Liggins is the
son of Ms. Hughes, Radio One's Chairperson and Secretary.
Mr. Royster has been Executive Vice President of Radio One since 1997 and
Chief Financial Officer of Radio One since 1996. Prior to joining Radio One, he
served as an independent consultant to Radio One. From 1995 to 1996, Mr.
Royster was a principal at TSG Capital Group, LLC, a private equity investment
firm located in Stamford, Connecticut, which has been an investor in Radio One
since 1987. Mr. Royster has also served as an associate and later a principal
at Capital Resource Partners from 1992 to 1995, a private capital investment
firm in Boston, Massachusetts. Mr. Royster is a graduate of Duke University and
Harvard Business School.
Ms. Sneed has been Radio One's Chief Operating Officer since January 1998
and General Manager of ROA since 1995. Prior to joining Radio One, she held
various positions with Summit Broadcasting including Executive Vice President
of the Radio Division, and Vice President of Operations from 1992 to 1995.
Ms. Sneed is a graduate of Auburn University.
Ms. Eckard has been General Counsel of Radio One since January 1998. Prior
to joining Radio One as General Counsel, Ms. Eckard represented Radio One as
outside counsel from July 1995 until assuming her current position. Ms. Eckard
was a partner in the Washington, D.C. office of Davis Wright Tremaine LLP, a
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from August 1997 to December 1997. Her practice focused on transactions and FCC
regulatory matters. Prior to joining Davis Wright Tremaine LLP, Ms. Eckard was
a shareholder of Roberts & Eckard, P.C., a firm that she co-founded in April
1992. Ms. Eckard is a graduate of Gettysburg College, the National Law Center
at George Washington University and the University of Glasgow. Ms. Eckard is
admitted to the District of Columbia Bar and the Bar of the United States
Supreme Court.
Mr. Hegwood has been the Vice President of Programming for Radio One and
Program Director of WKYS-FM since 1995. From 1990 to 1995, Mr. Hegwood was
Program Director of WJLB-FM in Detroit, Michigan.
Ms. Hartmann has been Controller of Radio One since 1997. Prior to joining
Radio One, she served as Vice President and Market Controller for Bonneville
International Corporation in Phoenix, Arizona from 1991 to 1997. Ms. Hartmann
is a graduate of the University of California and has an M.B.A. degree from the
University of Phoenix.
Mr. Jones has been a director of Radio One since 1995. Since 1990, Mr. Jones
has been President of Syndicated Communications, Inc. ("Syncom I"), a
communications venture capital investment company, and its wholly owned
subsidiary, Syncom. He joined Syncom I in 1978 as a Vice President. Mr. Jones
serves in various capacities, including director, president, general partner
and vice president, for various other entities affiliated with Syncom I. He
also serves on the board of directors of the National Association of Investment
Companies, Delta Capital Corporation, Sun Delta Capital Access Center and the
Southern African Enterprise Development Fund. Mr. Jones earned his B.S. degree
from Trinity College, his M.S. from George Washington University and his M.B.A.
from Harvard Business School.
Mr. McNeill has been a director of Radio One since 1995. Since 1986, Mr.
McNeill has been a General Partner of Burr, Egan, Deleage & Co., a major
private equity firm which specializes in investments in the communications and
technology industries. He has served as a director in many private radio and
television broadcasting companies such as Tichenor Media Systems, OmniAmerica
Group, Panache Broadcasting and Shockley Communications. From 1979 to 1986, he
worked at the Bank of Boston where he started and managed that institution's
broadcast lending group. Mr. McNeill is a graduate of Holy Cross College and
earned an M.B.A. from the Amos Tuck School at Dartmouth College.
Mr. Marcus is expected to become a director of Radio One in April 1999. Mr.
Marcus is currently President of Peak Media L.L.C., which is the sole
management member of Peak Media Holdings L.L.C., the owner of a television
station in Johnstown, Pennsylvania, and the operator under a time brokerage
agreement of a television station in Altoona, Pennsylvania. He is also an
officer and director of Better Communications, Inc., a general partner of the
owner of two television stations in Indiana. In 1989, Mr. Marcus became the
Chief Financial Officer of River City Broadcasting, licensee of ten television
stations and thirty-four radio stations located in medium to large markets.
River City Broadcasting was sold to Sinclair Broadcasting in 1996. Mr. Marcus
is also a director of Citation Computer Systems, Inc., a publicly traded NASDAQ
company. Mr. Marcus is a graduate of City College of New York.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has formed an Audit Committee and a Compensation
Committee whose members are Mr. Jones and Mr. McNeill, neither of whom is an
employee of Radio One.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
Our non-officer directors are reimbursed for all out-of-pocket expenses
related to meetings attended. Non-officer directors receive no additional
compensation for their services as directors. Our officers who serve as
directors do not receive compensation for their services as directors other
than the compensation they receive as officers of Radio One.
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Compensation of Executive Officers
The following information relates to compensation of our Chief Executive
Officer and each of our most highly compensated executive officers (the "Named
Executives") for the fiscal years ended December 31, 1998, 1997 and 1996 (as
applicable):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------------- All Other
Name and Principal Positions Year Salary Bonus Compensation
- ---------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Catherine L. Hughes................... 1998 $225,000 $100,000 $3,232
Chairperson of the Board of Directors
and Secretary 1997 193,269 50,000 3,050
1996 150,000 31,447 18,321
Alfred C. Liggins, III................ 1998 225,000 100,000 3,567
Chief Executive Officer, President, 1997 193,269 50,000 3,125
Treasurer and Director 1996 150,000 -- 19,486
Scott R. Royster...................... 1998 165,000 50,000 n/a
Executive Vice President and Chief
Financial Officer 1997 148,077 25,000 n/a
1996 55,577(/1/) -- n/a
Mary Catherine Sneed.................. 1998 200,000 50,000 n/a
Chief Operating Officer
Linda J. Eckard....................... 1998 150,000 25,000 n/a
General Counsel
</TABLE>
- --------
(1) Mr. Royster provided consulting services for Radio One in July 1996 and
joined Radio One as an employee in August 1996. Disclosed compensation
represents consulting fees received by Mr. Royster and the portion of his
$125,000 annual salary paid during 1996.
Employment Agreements
Ms. Catherine L. Hughes Employment Agreement. We anticipate entering into a
three-year employment agreement with Ms. Hughes pursuant to which Ms. Hughes
will continue to serve as Radio One's Chairperson of the board of directors.
Ms. Hughes will receive an annual base salary of $250,000 effective January 1,
1999, subject to an annual increase of not less than 5%, and an annual cash
bonus at the discretion of the board of directors. We could incur severance
obligations under the expected terms of the employment agreement in the event
that Ms. Hughes's employment is terminated.
Mr. Alfred C. Liggins, III Employment Agreement. We anticipate entering into
a three-year employment agreement with Mr. Liggins pursuant to which Mr.
Liggins will continue to serve as Radio One's Chief Executive Officer and
President. Mr. Liggins will receive an annual base salary of $300,000 effective
January 1, 1999, subject to an annual increase of not less than 5%, and an
annual cash bonus at the discretion of the board of directors. Radio One could
incur severance obligations under the expected terms of the employment
agreement in the event that Mr. Liggins's employment is terminated.
Mr. Scott R. Royster Employment Agreement. We anticipate entering into a
three-year employment agreement with Mr. Royster pursuant to which Mr. Royster
will continue to serve as our Chief Financial Officer and Executive Vice
President. Under the expected terms of the employment agreement Mr. Royster
will receive an annual base salary of $200,000 effective January 1, 1999,
subject to an annual increase of not less than 5%, an annual cash bonus at the
discretion of the board of directors, and a one-time cash bonus of $60,000,
payable upon completion of an equity financing which results in gross proceeds
to us of at least $50 million. Mr. Royster has also received a one-time
restricted stock award of 51,194 shares of our class C common stock and an
option to purchase shares of our class A common stock at an exercise price
of per share (subject to certain adjustments). Twenty-five percent of the
stock granted pursuant to the stock award vested on the date of grant; the
remaining stock will vest in equal increments every six months
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beginning December 31, 1999 and ending December 31, 2001. The options will vest
in equal one-sixth increments during the term of the employment agreement. We
could incur severance obligations under the expected terms of the employment
agreement in the event that Mr. Royster's employment is terminated.
Ms. Mary Catherine Sneed Employment Agreement. We are party to an employment
agreement with Ms. Sneed pursuant to which she was hired to serve as Radio
One's Chief Operating Officer. The employment agreement provides that Ms. Sneed
will receive an annual base salary of $220,000 and an annual cash bonus of up
to $50,000, contingent upon the satisfaction of certain performance criteria.
We could incur certain severance obligations under the employment agreement in
the event that Ms. Sneed's employment is terminated. If, during the term of the
employment agreement, we terminate Ms. Sneed's employment without just cause or
following a change of control of Radio One, Ms. Sneed will continue to receive
her base salary for a period of twelve months, during the first six months of
which she will be subject to certain non-compete restrictions.
Ms. Linda J. Eckard Employment Agreement. We anticipate entering into an
employment agreement with Ms. Eckard pursuant to which Ms. Eckard will continue
to serve as our General Counsel. Under the expected terms of the employment
agreement, Ms. Eckard will receive an annual base salary of $175,000 effective
January 1, 1999, subject to an annual increase of not less than 5%, an annual
cash bonus at the discretion of the board of directors, and a one-time cash
bonus of $ , payable upon completion of an equity financing which results in
gross proceeds to us of at least $50 million. Ms. Eckard will also receive an
option to purchase shares of our class A common stock at an exercise price
of per share (subject to certain adjustments). We could incur severance
obligations under the expected terms of the employment agreement in the event
that Ms. Eckard's employment is terminated.
401(k) Plan
We adopted a defined contribution 401(k) savings and retirement plan
effective August 1, 1994. Employees are eligible to participate after
completing 90 days of service and attaining age 21. Participants may contribute
up to 15% of their gross compensation subject to certain limitations.
Stock Option Plan
On March 10, 1999, we adopted an option plan designed to provide incentives
relating to equity ownership to present and future executive, managerial and
other key employees, directors and consultants of Radio One and our
subsidiaries as may be selected in the sole discretion of the board of
directors. The option plan provides for the granting to participants of stock
options and restricted stock grants as the Compensation Committee of the board
of directors, or such other committee of the board of directors as the board of
directors may designate (the "Committee") deems to be consistent with the
purposes of the option plan. An aggregate of 1,408,100 shares of common stock
have been reserved for issuance under the option plan. The option plan affords
Radio One latitude in tailoring incentive compensation for the retention of key
personnel, to support corporate and business objectives, and to anticipate and
respond to a changing business environment and competitive compensation
practices.
The Committee has exclusive discretion to select the participants, to
determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all
other determinations which it deems necessary or desirable in the
interpretation and administration of the option plan. The option plan
terminates ten years from the date that the option plan was approved and
adopted by the stockholders of Radio One. Generally, a participant's rights and
interest under the option plan are not transferable except by will or by the
laws of descent and distribution.
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Options, which include non-qualified stock options and incentive stock
options, are rights to purchase a specified number of shares of common stock at
a price fixed by the Committee. The option price may be less than, equal to or
greater than the fair market value of the underlying shares of common stock,
but in no event will the exercise price of an incentive stock option be less
than the fair market value on the date of grant. Options will expire not later
than ten years after the date on which they are granted. Options will become
exercisable at such times and in such installments as the Committee shall
determine. Upon termination of a participant's employment with Radio One,
options that are not exercisable will be forfeited immediately and Options that
are exercisable will be forfeited on the thirtieth day following such
termination unless exercised by the participant. Payment of the option price
must be made in full at the time of exercise in such form (including, but not
limited to, cash or common stock of Radio One) as the Committee may determine.
Grants are awards of restricted common stock at no cost to participants and
are generally subject to vesting provisions as determined by the Committee.
Upon termination of a participant's employment with Radio One, grants that are
not vested will be forfeited immediately.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of Radio One, the
Committee will make any adjustments it deems appropriate in the number and kind
of shares reserved for issuance upon the exercise of options and vesting of
grants under the option plan and in the exercise price of outstanding options.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MABLETON OPTION
Mr. Liggins, the Chief Executive Officer and President of Radio One, has a
right, which he obtained in 1995, (the "Mableton Option") to acquire an
interest in a construction permit for an FM radio station licensed to Mableton,
Georgia (the "Mableton Station") which is in the Atlanta MSA. Mr. Liggins and
the principals of Syncom, Herbert P. Wilkins, Terry L. Jones and Duane
McKnight, have reached an agreement in principle to provide initial funding to
satisfy the requirements of the Mableton Option. Terry L. Jones is also a
member of Radio One's board of directors. Mr. Liggins has also proposed that
Radio One, most likely through ROA, enter into an LMA with respect to the
Mableton Station, or otherwise participate in the operations and financing of
the Mableton Station. Any such arrangement will be on terms at least as
favorable to Radio One as any such transaction with an unaffiliated third
party.
OFFICE LEASE
We lease office space located at 100 St. Paul Street, Baltimore, Maryland
from Chalrep Limited Partnership, a limited partnership controlled by Ms.
Hughes and Mr. Liggins. The annual rent for the office space is $152,400. We
believe that the terms of this lease are not materially different than if the
agreement were with an unaffiliated third party.
MR. LIGGINS' LOAN
We have extended an unsecured loan to Mr. Liggins in the amount of $380,000,
which bears interest at an annual rate of 5.56% and is evidenced by a demand
promissory note dated as of June 30, 1998. As of March 1, 1999, the aggregate
outstanding principal and interest amount on this loan was $386,386. The
purpose of the loan was to repay a loan that Mr. Liggins obtained from
NationsBank, Texas, N.A. in 1997 to purchase an additional interest in Radio
One.
MUSIC ONE, INC.
Ms. Hughes and Mr. Liggins own a music company called Music One, Inc. We
sometimes engage in promoting the recorded music product of Music One, Inc. We
estimate that the dollar value of such promotion is nominal.
ALLUR-DETROIT
Allur-Detroit leases the transmitter site for WWBR-FM from American
Signalling Corporation for approximately $72,000 per year. American Signalling
Corporation is a wholly-owned subsidiary of Syncom Venture Partners. We believe
that the terms of this lease are not materially different than if the agreement
were with an unaffiliated third party.
XM SATELLITE, INC.
Radio One and XM Satellite Radio, Inc. have entered into a Programming
Partner Agreement whereby we will provide programming to XM Satellite Radio,
Inc. for distribution over satellite-delivered channels. Worldspace, Inc. holds
20% of the stock of XM Satellite Radio, Inc. Syncom Venture Partners owns
approximately 1.25% of the stock of Worldspace, Inc. Terry L. Jones, a director
of Radio One, is also a director of Worldspace, Inc.
RADIO ONE OF ATLANTA, INC.
On March 30, 1999, we acquired all of the outstanding capital stock of ROA.
ROA's stockholders included Alta Subordinated Debt Partners III, L.P. ("Alta"),
Syncom Venture Partners, and Alfred C. Liggins, III. Mr. Brian W. McNeill, a
general partner of Alta, is also a member of Radio One's board of directors. In
addition to holding shares of Radio One's existing preferred stock prior to the
offering, Alta will hold approximately 13.0% of the class A common stock after
completion of the offering. Terry L. Jones, a general partner of the general
partner of Syncom Venture Partners, is also a member of Radio One's board of
directors and is the President of Syncom and Syncom I. In addition to holding
shares of Radio One's existing preferred stock prior to the offering, Syncom is
one of the selling stockholders and will hold approximately 9.1% of the class A
common stock after completion of this offering.
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Radio One issued approximately 3.3 million shares of common stock in
exchange for the outstanding capital stock of ROA. Alta, Syncom Venture
Partners and Mr. Liggins received a majority of such shares in exchange for
their shares in ROA. In connection with this transaction, Mr. Liggins was paid
a fee of approximately $1.2 million for arranging the acquisition. Also, as
part of this transaction, Radio One assumed and retired debt and accrued
interest of approximately $16.3 million of ROA and Dogwood. Of this amount,
approximately $12.0 million was paid to Allied Capital Corporation, which is
one of the selling stockholders, approximately $1.3 million was paid to Syncom
Venture Partners, and approximately $2.0 million was paid to Alta.
The board of directors authorized the formation of an ad-hoc committee to
oversee the valuation of ROA. The ad-hoc committee members are Catherine L.
Hughes of Radio One, Sanford Anstey of BancBoston Investments, Inc. and Dean
Pickerell of Medallion Capital, Inc. (formerly Capital Dimensions Venture Fund,
Inc.). The committee is comprised of members of the board of directors of, and
investors in, Radio One that do not have an interest in ROA.
The ad-hoc committee recommended approval of the acquisition of ROA based
upon its determination that the acquisition was fair to Radio One and its
stockholders.
MS. SNEED'S LOAN
ROA has extended an unsecured loan to Mary Catherine Sneed, Chief Operating
Officer of Radio One, in the original amount of $262,539, which bears interest
at an annual rate of 5.56% and is evidenced by two demand promissory notes. As
of March 30, 1999, the aggregate outstanding principal and interest amount on
this loan was $263,394. The purpose of this loan was to pay Ms. Sneed's tax
liability with respect to incentive stock grants of ROA stock received by Ms.
Sneed.
SELLING STOCKHOLDERS
The following table sets forth with respect to each of the selling
stockholders (1) the number of shares of class A common stock held by that
selling stockholder prior to the offering, (2) the number of shares of class A
common stock to be sold by that selling stockholder in the offering, (3) the
amount of class A common stock that the selling stockholder will hold after
completion of the offering, and (4) the percentage of the outstanding class A
common stock that the selling stockholder will hold after completion of the
offering, without giving effect to the exercise of the underwriters' over-
allotment option.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NUMBER OF SHARES NUMBER OF SHARES SHARES OF CLASS OF CLASS A
OF CLASS A OF CLASS A A COMMON COMMON
COMMON COMMON STOCK HELD AFTER STOCK HELD AFTER
NAME OF STOCK HELD PRIOR STOCK TO BE SOLD COMPLETION OF COMPLETION OF
SELLING STOCKHOLDER TO THE OFFERING IN THE OFFERING THE OFFERING THE OFFERING
- ------------------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BancBoston Investments,
Inc.................... 633,563 243,243 390,320 3.6%
Fulcrum Venture Capital
Corporation ........... 490,815 270,274 220,541 2.0
Opportunity Capital
Corporation ........... 194,942 97,471 97,471 0.9
Syncom Capital
Corporation ........... 1,135,696 135,135 1,000,561 9.1
Syndicated
Communications Venture
Partners .............. 786,589 629,271 157,318 1.4
Allied Capital
Corporation ........... 187,470 187,470 -- --
Allied Investment
Corporation............ 281,206 281,206 -- --
--------- --------- --------- ----
Total................. 3,710,281 1,844,070 1,866,211 17.0%
========= ========= ========= ====
</TABLE>
Terry L. Jones, the President of Syncom and a general partner of the general
partner of Syncom Venture Partners, is also a member of our board of directors.
In connection with our acquisition of ROA, we assumed and retired approximately
$1.3 million of debt owed by ROA to Syncom Venture Partners.
In connection with our acquisition of ROA, we assumed and retired
approximately $12.0 million of debt owed by ROA to Allied Capital Corporation
and Allied Investment Corporation.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock after giving effect to this offering, but without
giving effect to the exercise of the underwriters' over-allotment option, by:
(1) each person (or group of affiliated persons) known by us to be the
beneficial owner of more than five percent of any class of common stock; (2)
each Named Executive; (3) each of our directors; (4) the selling stockholders;
(5) all of our directors and officers as a group. The number of shares of each
class of common stock excludes the shares of any other class of common stock
issuable upon conversion of that class of common stock. Unless otherwise
indicated in the footnotes below, each stockholder possesses sole voting and
investment power with respect to the shares listed.
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------------------- Percent Percent
Class A Class B Class C of of
------------------ ------------------ ------------------ Total Total
Name of Number Percent Number Percent Number Percent Economic Voting
Beneficial Owner of Shares of Class of Shares of Class of Shares of Class Interest Power
- ------------------------ --------- -------- --------- -------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Catherine L.
Hughes(/1/)............ -- -- % 851,536 29.6% 1,704,740 53.4% 15.0% 22.3%
c/o Radio One,
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Alfred C. Liggins,
III(/1/)(/4/).......... 33,040 0.3 2,010,308 70.0 1,419,646 44.4 20.3 49.9
c/o Radio One,
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Scott R. Royster........ -- -- -- -- 49,191 1.5 0.3 --
c/o Radio One,
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Mary Catherine Sneed.... 229,422 2.1 -- -- -- -- 1.3 0.6
c/o Radio One,
5900 Princess Garden
Parkway,
8th Floor,
Lanham, Maryland 20706
Terry L. Jones(/2/)..... 1,157,879 10.5 -- -- -- -- 6.8 2.9
c/o Syncom Capital
Corporation,
8401 Colesville Road,
Suite 300,
Silver Spring, MD 20910
Brian W. McNeill(/3/)... 1,419,795 13.0 -- -- -- -- 8.3 3.6
c/o Burr, Egan, Deleage
& Co.,
One Post Office Square,
Boston, MA 02109
Alta Subordinated Debt
Partners III,
L.P.(/4/).............. 1,419,795 13.0 -- -- -- -- 8.3 3.6
c/o Burr, Egan, Deleage
& Co.,
One Post Office Square,
Boston, MA 02109
Alliance Enterprise
Corporation(/4/)....... 587,971 5.4 -- -- -- -- 3.5 1.5
12655 N. Central
Expressway,
Suite 710,
Dallas, TX 75243
BancBoston Investments,
Inc.(/4/).............. 390,320 3.6 -- -- -- -- 2.3 0.9
100 Federal Street,
32nd Floor,
Boston, MA 02110
Medallion Capital,
Inc.(/4/).............. 479,181 4.4 -- -- -- -- 2.8 1.2
7831 Glenroy Road,
Suite 480,
Minneapolis, MN 55439
Fulcrum Venture Capital
Corporation(/4/)....... 220,541 2.0 -- -- -- -- 1.3 0.6
300 Corporate Point,
Suite 380,
Culver City, CA 90230
Syncom Capital
Corporation and
Syndicated
Communications Venture
Partners(/4/).......... 1,157,879 10.5 -- -- -- -- 6.8 2.9
8401 Colesville Road,
Suite 300,
Silver Spring, MD 20910
All Directors and Named
Executives as a group
(7 persons)............ 2,840,136 25.9 2,861,844 99.6 3,173,577 99.3 52.0 79.3
</TABLE>
75
<PAGE>
- --------
(1) Ms. Hughes and Mr. Liggins may be deemed to share beneficial ownership of
shares of capital stock owned by each other by virtue of the fact that Ms.
Hughes is Mr. Liggins' mother. Each of Ms. Hughes and Mr. Liggins disclaims
such beneficial ownership. The shares of class B common stock are subject
to a voting agreement between Ms. Hughes and Mr. Liggins with respect to
the election of Radio One's directors. Pursuant to that agreement, Mr.
Liggins has transferred to Ms. Hughes voting control over shares of common
stock representing approximately 0.8% of the total voting power of all
common stock until such time as Mr. Liggins is permitted under applicable
laws and regulations to hold in excess of 50% of such voting power.
(2) Represents 1,157,879 shares of class A common stock held by Syncom. Mr.
Jones is the President of Syncom and may be deemed to share beneficial
ownership of shares of class A common stock and existing preferred stock
held by Syncom by virtue of his affiliation with Syncom. Mr. Jones
disclaims beneficial ownership in such shares.
(3) Represents 1,419,795 shares of class A common stock held by Alta. Mr.
McNeill is a general partner of Alta and Mr. McNeill may be deemed to share
beneficial ownership of shares of class A common stock and existing
preferred stock held by Alta by virtue of his affiliation with Alta.
Mr. McNeill disclaims any beneficial ownership of such shares.
(4) Such person is a holder of shares of existing preferred stock, as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
NAME OF STOCKHOLDER SERIES A PREFERRED STOCK HELD SERIES B PREFERRED STOCK HELD
- ------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Alfred C. Liggins, III.. 2,359.67 --
Alta Subordinated Debt
Partners III, L.P...... -- 72,139.57
Alliance Enterprise
Corporation............ 9,126.55 --
BancBoston Investments,
Inc.................... -- 49,249.44
Medallion Capital,
Inc.................... 37,258.14 --
Fulcrum Venture Capital
Corporation............ 9,650.09 --
Syncom Capital
Corporation............ 13,595.69 --
</TABLE>
We intend to use part of the proceeds of the preferred stock offering to
redeem all of our existing preferred stock.
76
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to the
consummation of the transactions contemplated under "Capitalization," which
will occur prior to or simultaneously with this offering, the proposed sale of
6,200,000 shares of class A common stock by Radio One in this offering and,
except as otherwise provided below, the proposed sale of 50,000 shares of new
preferred stock by Radio One in the preferred stock offering. Our capital stock
consists of (1) 90,000,000 authorized shares of common sock, $0.01 par value
per share, which consists of (a) 30,000,000 shares of class A common stock, of
which 10,957,771 shares are outstanding (11,577,771 shares assuming the
underwriters overallotment option is exercised), (b) 30,000,000 shares of
class B common stock, of which 2,873,084 shares are outstanding, and
(c) 30,000,000 shares of class C common stock, of which 3,195,064 shares are
outstanding, and (2) 380,000 authorized shares of preferred stock, par value
$0.01 per share, which consists of 140,000 shares of series A preferred stock,
none of which is outstanding, 150,000 shares of series B preferred stock, none
of which is outstanding and 90,000 shares of new preferred stock, of which
50,000 shares are outstanding. In the event the preferred stock offering were
not consummated, there would be no shares of new preferred stock outstanding,
and there would be 140,000 shares of series A preferred stock authorized, of
which 84,843 shares would be outstanding and (b) 150,000 shares of series B
preferred stock authorized, of which 124,467 would be outstanding. There is no
established trading market for our common stock or new preferred stock. The
following is summary of the material provisions of our certificate of
incorporation, which is filed as an exhibit to the Registration Statement of
which this prospectus is a part.
Class A Common Stock
The holders of class A common stock are entitled to one vote for each share
held on all matters voted upon by stockholders, including the election of
directors and any proposed amendment to the certificate of incorporation. The
holders of class A common stock are entitled to vote as a class to elect two
independent directors to the board of directors. The holders of class A common
stock will be entitled to such dividends as may be declared at the discretion
of the board of directors out of funds legally available for that purpose. The
holders of class A common stock will be entitled to share ratably with all
other classes of common stock in the net assets of Radio One upon liquidation
after payment or provision for all liabilities. All shares of class A common
stock may be converted at any time into a like number of shares of class C
common stock at the option of the holder of such shares. All shares of class A
common stock issued pursuant to the offering will be fully paid and non-
assessable.
Application has been made for the listing of the class A common stock on The
Nasdaq National Market, subject to official notice of issuance.
Class B Common Stock
The holders of class B common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock, except
that the holders of class B common stock will be entitled to ten votes per
share. All shares of class B common stock may be converted at any time into a
like number of shares of class A common stock at the option of the holder of
such shares. Catherine L. Hughes and Alfred C. Liggins, III may transfer shares
of class B common stock held by them only to "Class B Permitted Transferees,"
and Class B Permitted Transferees may transfer shares of class B common stock
only to other Class B Permitted Transferees. If any shares of class B common
stock are transferred to any person or entity other than a Class B Permitted
Transferee, such shares will automatically be converted into a like number of
shares of class A common stock. "Class B Permitted Transferees" include Ms.
Hughes, Mr. Liggins, their respective estates, spouses, former spouses, parents
or grandparents or lineal descendants thereof, and certain trusts and other
entities for the benefit of, or beneficially owned by, such persons. Ms. Hughes
and Mr. Liggins have agreed to vote their shares of common stock to elect each
other and other mutually agreeable nominees to the board of directors. See
"Risk Factors--Controlling Stockholders."
77
<PAGE>
Class C Common Stock
The holders of class C common stock are entitled to the same rights,
privileges, benefits and notices as the holders of class A common stock and
class B common stock, except that the holders of class C common stock will be
entitled to no votes per share. All shares of class C common stock may be
converted at any time into a like number of shares of class A common stock at
the option of the holder of such shares, except that Class B Permitted
Transferees may convert shares of class C common stock into shares of class A
common stock, or otherwise acquire shares of class A common stock, only in
connection with:
. a merger or consolidation of Radio One with or into, or other
acquisition of, another entity pursuant to which the Class B Permitted
Transferees are to receive shares of class A common stock in exchange
for their interest in such entity;
. the transfer of such shares of class A common stock to a person or
entity other than a Class B Permitted Transferee; or
. a registered public offering of such shares of class A common stock.
New Preferred Stock
Concurrent with this offering, we intend to offer for sale 50,000 shares of
our new preferred stock.
Dividends on the new preferred stock will accrue from the date of issuance
and will be payable in arrears on June 30 and December 31 of each year,
beginning June 30, 1999, at an annual rate of % of the liquidation
preference of $1,000 per share. Dividends will be payable in cash, except that
on each dividend payment date occurring on or prior to June 30, 2004, dividends
may be paid, at Radio One's option, by the issuance of additional shares of new
preferred stock (including fractional shares) having an aggregate liquidation
preference equal to the amount of such dividends.
The new preferred stock will not be redeemable prior to June 30, 2004,
except that, on or prior to June 30, 2002, we may redeem, at our option, in
whole but not in part, the outstanding new preferred stock with the net
proceeds of one or more public equity offerings at a redemption price of %
of the liquidation preference thereof, plus accumulated and unpaid dividends to
the date of redemption. On or after June 30, 2004, the new preferred stock is
redeemable at the option of Radio One, at the prices set forth below (expressed
in percentages of its liquidation preference), plus accumulated and unpaid
dividends, if redeemed during the 12-month period beginning on July 1 of the
years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ ----------
<S> <C>
2004.............................. %
2005..............................
2006..............................
2007 and thereafter............... 100.000
</TABLE>
We are required to redeem the new preferred stock on June 30, 2011, at a
redemption price equal to 100% of its liquidation preference plus accumulated
and unpaid dividends to the date of redemption.
The new preferred stock will rank senior to all other classes of equity
securities of Radio One outstanding upon completion of this offering. We may
not authorize any new class of stock equal or senior in rights to the new
preferred stock without the approval of the holders of at least a majority of
the shares of new preferred stock then outstanding.
On any scheduled dividend payment date, Radio One may, at its option,
exchange all but not less than all of the shares of new preferred stock then
outstanding for our % subordinated exchange debentures due 2011 (the
"exchange debentures"). The exchange debentures will bear interest at a rate of
% per annum, payable semiannually in arrears on June 30 and December 31 of
each year (or, on or prior to June 30, 2004, in additional exchange debentures,
at the option of Radio One), beginning with the first such date to occur after
the date of exchange. The exchange debentures will be subordinated to all
existing and future senior debt of Radio One and to all indebtedness and other
liabilities (including trade payables) of Radio One's subsidiaries.
78
<PAGE>
The new preferred stock and, if applicable, the indenture governing the
exchange debentures will limit, subject to certain restrictions:
1. the incurrence of additional indebtedness and the issuance of preferred
stock by Radio One and its Restricted Subsidiaries,
2. the payment of dividends and other distributions by Radio One and its
Restricted Subsidiaries in respect of their capital stock,
3. investments or other restricted payments by Radio One and its Restricted
Subsidiaries,
4. asset sales and asset swaps,
5. certain transactions with affiliates,
6. the sale or issuance of capital stock of Restricted Subsidiaries, and
7. mergers and consolidations.
The new preferred stock will also prohibit certain restrictions on dividends
and other distributions from our Restricted Subsidiaries.
Foreign Ownership
Radio One's certificate of incorporation restricts the ownership, voting and
transfer of our capital stock, including the class A common stock, in
accordance with the Communications Act and the rules of the FCC, which prohibit
the issuance of more than 25% of our outstanding capital stock (or more than
25% of the voting rights such stock represents) to or for the account of aliens
(as defined by the FCC) or corporations otherwise subject to domination or
control by aliens. Our certificate of incorporation prohibits any transfer of
our capital stock that would cause a violation of this prohibition. In
addition, the certificate of incorporation authorizes the board of directors to
take action to enforce these prohibitions, including restricting the transfer
of shares of capital stock to aliens and placing a legend restricting foreign
ownership on the certificates representing the class A common stock.
Registration Rights
The holders of substantially all of the shares of class A common stock
outstanding prior to the closing of this offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 6.6 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Under
these agreements, the holders of class A common stock may require us to
register their shares under the Securities Act for offer and sale to the public
(including by way of an underwritten public offering) on up to four occasions.
These agreements also permit demand registrations on Form S-3 registration
statements provided that we are eligible to register our capital stock on Form
S-3. All such registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares to be included in a registration. The holders of the class A common
stock have waived their "piggyback" registration rights with respect to the
offering.
Limitations on Directors' and Officers' Liability
Radio One's certificate of incorporation limits the liability of directors
to the maximum extent permitted by Delaware law, which specifies that a
director of a company adopting such a provision will not be personally liable
for monetary damages for breach of fiduciary duty as a director, except for the
liability (1) for any breach of the director's duty of loyalty to Radio One or
its stockholders; (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided in
Section 174 of the Delaware General Corporation Law; or (4) for any transaction
from which the director derived an improper personal benefit.
79
<PAGE>
Radio One's certificate of incorporation provides for mandatory
indemnification of directors and officers and authorizes indemnification for
employees and agents in such manner, under such circumstances and to the
fullest extent permitted by the Delaware General Corporation Law, which
generally authorizes indemnification as to all expenses incurred or imposed as
a result of actions, suits or proceedings if the indemnified parties act in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of Radio One. We believe these provisions are necessary or
useful to attract and retain qualified persons as directors. Radio One
maintains directors and officers insurance for the benefit of its directors and
officers.
There is no pending litigation or proceeding involving a director or officer
as to which indemnification is being sought.
Transfer Agent and Registrar
United States Trust Company of New York is our transfer agent and registrar.
80
<PAGE>
DESCRIPTION OF INDEBTEDNESS
Bank Credit Facility
On February 26, 1999, we entered into an amended and restated credit
agreement providing for a bank credit facility under which we may borrow up to
$100 million on a revolving basis from a group of banking institutions. Draw
downs under the bank credit facility are currently available, subject to
compliance with provisions of the credit agreement, including but not limited
to the financial covenants. Specifically, borrowings under the bank credit
facility may be entirely of Eurodollar Loans, Alternate Base Rate ("ABR") Loans
or a combination thereof. The bank credit facility will be fully available
until a maturity date of December 31, 2003. No commitment reductions under the
bank credit facility will occur until the final maturity date, provided that
Radio One does not acquire or issue additional indebtedness or Disqualified
Stock (as such term is defined in the credit agreement).
The bank credit facility terminates on December 31, 2003, at which time any
outstanding principal together with all accrued and unpaid interest thereon
would become due and payable. All amounts under the bank credit facility are
guaranteed by each of Radio One's direct and indirect subsidiaries other than
WYCB Acquisition Corporation and Broadcast Holdings, Inc.
The bank credit facility is secured by a perfected first priority secured
interest in: (1) substantially all of the tangible and intangible assets of
Radio One and our direct and indirect subsidiaries including, without
limitation, any and all FCC licenses to the maximum extent permitted by law and
(2) all of the common stock of Radio One and our direct and indirect
subsidiaries, including all warrants or options and other similar securities to
purchase such securities. Radio One also granted a security interest in all
money (including interest), instruments and securities at any time held or
acquired in connection with a cash collateral account established pursuant to
the credit agreement, together with all proceeds thereof.
The interest rates on the borrowings under the bank credit facility are
based on the ratio of total debt to EBITDA, with a maximum margin above ABR of
1.625% with respect to ABR Loans, and a maximum margin above Eurodollar rate
2.625% with respect to Eurodollar Loans. Interest on Eurodollar Loans is based
on a 360-day period for actual days elapsed, and interest on ABR Loans is based
on a 365-day period for actual days elapsed. In addition, Radio One will pay a
commitment fee equal to an amount based on the average daily amount of the
available commitment computed at a rate per year tied to a leverage ratio in
effect for the fiscal quarter preceding the date of payment of such fee. The
commitment fee is fully earned and non-refundable and is payable quarterly in
arrears on the last business day of each March, June, September and December
and on the maturity date.
The credit agreement contains customary and appropriate affirmative and
negative covenants including, but not limited to, financing covenants and other
covenants including limitations on other indebtedness, liens, investments,
guarantees, restricted payments (dividends, redemptions and payments on
subordinated debt), prepayment or repurchase of other indebtedness, mergers and
acquisitions, sales of assets, capital expenditures, losses, transactions with
affiliates and other provisions customary and appropriate for financing of this
type, including mutually agreed upon exceptions and baskets. The financial
covenants include:
. a maximum ratio of total debt to EBITDA of 7.0x;
. a maximum ratio of senior debt to EBITDA of 4.5x;
. a minimum interest coverage ratio; and
. a minimum fixed charge coverage ratio.
The credit agreement contains the following customary events of default:
. failure to make payments when due;
. defaults under any other agreements or instruments of indebtedness;
81
<PAGE>
. noncompliance with covenants;
. breaches of representations and warranties;
. voluntary or involuntary bankruptcy or liquidation proceedings;
. entrance of judgments;
. impairment of security interests in collateral; and
. changes of control.
12% Notes Due 2004
On May 15, 1997, we entered into an approximate $85.0 million aggregate
principal amount offering (the "12% notes offering") of our 12% Senior
Subordinated Notes (the "12% notes due 2004"). The 12% notes offering has an
aggregate initial accreted value of approximately $75.0 million, as of Maturity
Date May 15, 2004.
The 12% notes due 2004 were issued pursuant to an indenture, dated as of May
15, 1997 among Radio One, Radio One Licenses, Inc. and United States Trust
Company of New York (the "12% notes indenture"). The 12% notes due 2004 are
generally unsecured obligations of Radio One and are subordinated in rights of
payment to all Senior Indebtedness (as defined in the 12% notes indenture). All
of our Restricted Subsidiaries are Subsidiary Guarantors of the 12% notes due
2004.
The 12% notes due 2004 were issued at a substantial discount from their
principal amount. The issue price to investors per note was $877.42, which
represents a yield to maturity on the 12% notes due 2004 of 12.0% calculated
from May 19, 1997 (computed on a semi-annual bond equivalent basis).
Cash interest on the 12% notes due 2004 accrues at a rate of 7.0% per annum
on the principal amount of the 12% notes due 2004 through and including May 15,
2000, and at a rate of 12.0% per annum on the principal amount of the 12% notes
due 2004 after such date. Cash interest on the 12% notes due 2004 is currently
payable semi-annually on May 15 and November 15 of each year.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of Radio One, in whole or in part, on or after May 15, 2001 at the
redemption prices set forth in the 12% notes due 2004, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to May 15, 2000,
Radio One may redeem, at our option, up to 25.0% of the aggregate original
principal amount of the 12% notes due 2004 with the net proceeds of one or more
Public Equity Offerings at 112% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least approximately $64.1 million of the aggregate principal amount of the 12%
notes due 2004 remains outstanding after each such redemption. Upon a Change of
Control (as defined in the 12% notes indenture), we must commence an offer to
repurchase the 12% notes due 2004 at 101% of the Accreted Value thereof, plus
accrued and unpaid interest, if any, to the date of repurchase.
The 12% notes indenture contains certain restrictive covenants with respect
to Radio One and our Restricted Subsidiaries, including limitations on: (a) the
sale of assets, including the equity interests of our Restricted Subsidiaries,
(b) asset swaps, (c) the payment of Restricted Payments (as defined in the 12%
notes indenture), (d) the incurrence of indebtedness and issuance of preferred
stock by us or our Restricted Subsidiaries, (e) the issuance of Equity
Interests (as defined in the 12% notes indenture) by a Restricted Subsidiary,
(f) the payment of dividends on our capital stock and the purchase, redemption
or retirement of our capital stock or subordinated indebtedness, (g) certain
transactions with affiliates, (h) the incurrence of senior subordinated debt
and (i) certain consolidations and mergers. The 12% notes indenture also
prohibits certain restrictions on distributions from Restricted Subsidiaries.
All of these limitations and prohibitions, however, are subject to a number of
important qualifications.
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<PAGE>
The 12% notes indenture includes various events of default customary for
such type of agreements, such as failure to pay principal and interest when due
on the 12% notes due 2004, cross defaults on other indebtedness and certain
events of bankruptcy, insolvency and reorganization.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the class A
common stock of Radio One. The sale or availability for sale of substantial
amounts of class A common stock in the public market subsequent to the
offering, or the perception that such sales could occur, could adversely affect
market prices prevailing from time to time. Sales of substantial amounts of
class A common stock in the public market subsequent to the offering could also
adversely affect the ability of Radio One to raise equity capital in the
future.
Upon consummation of this offering, Radio One will have outstanding
17,025,919 shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and 17,645,919
shares of common stock assuming exercise of the underwriter's over-allotment in
full. The 6,200,000 shares of class A common stock sold in this offering will
be freely tradable without restriction under the Securities Act, unless
purchased by "affiliates" of Radio One as that term is defined in Rule 144
promulgated under the Securities Act. The remaining 10,825,919 shares of common
stock outstanding upon completion of the offering will be "restricted
securities," as that term is defined Rule 144 promulgated under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 promulgated under the Securities Act, which is summarized below.
The holders of substantially all of the shares of class A common stock
outstanding prior to the closing of this offering, other than Mr. Liggins, are
parties to registration rights agreements with us. These agreements, which
relate to approximately 6.6 million shares of class A common stock, provide
incidental or "piggyback" registration rights that allow such holders, under
certain circumstances, to include their shares of class A common stock in
registration statements initiated by Radio One or other stockholders. Such
registration rights agreements also permit demand registrations. The number of
shares sold in the public market could increase if such rights are exercised.
See "Description of Capital Stock--Registration Rights."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares
of common stock that have been outstanding and not held by any "affiliate" of
Radio One for a period of one year is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of
the then outstanding shares of class A common stock (approximately 110,000
shares immediately after completion of this offering assuming no exercise of
the underwriters' over-allotment option) or the average weekly reported trading
volume of the class A common stock during the four calendar weeks preceding the
date on which notice of such sale is given, provided certain manner of sale and
notice requirements and requirements as to the availability of current public
information are satisfied (such information requirements have been satisfied by
Radio One's filing of reports under the Securities Exchange Act of 1934, as
amended since August 1997). Affiliates of Radio One must comply with the
restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of common stock that are not
"restricted securities" (such as shares acquired by affiliates in this
offering). Under Rule 144(k), a person who is not deemed an "affiliate" of
Radio One at any time during the three months preceding a sale by him, and who
has beneficially owned shares of common stock that were not acquired from Radio
One or an "affiliate" of Radio One within the previous two years, would be
entitled to sell such shares without regard to volume limitations, manner of
sale provisions, notification requirements or the availability of current
public information concerning Radio One. As defined in Rule 144, an "affiliate"
of an issuer is a person that directly or indirectly through the use of one or
more intermediaries controls, or is controlled by, or is under common control
with, such issuer.
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<PAGE>
Radio One, all of its officers and directors, the selling stockholders and
other holders of common stock have entered into contractual "lock-up"
agreements providing that they will not offer, sell, contract to sell or grant
any option to purchase or otherwise dispose of the shares of common stock owned
by them or that could be purchased by them through the exercise of options to
purchase common stock of Radio One for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation on behalf of the underwriters. As a result of these restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144 and 144(k), shares subject to lock-up agreements will not be salable
until the agreements expire. Taking into account the lock-up agreements, no
additional shares of common stock will be eligible for sale in the public
market as of the effective date of this offering. Substantially all of the
remaining Restricted Shares will become eligible for sale in the public market
180 days after the effective date of the offering, subject in the case of
affiliates to the volume limitations described above.
Shortly after the effective date of the offering, Radio One intends to file
a Registration Statement under the Securities Act covering shares of class A
common stock reserved for issuance under Radio One's option plan. Such
Registration Statement will cover approximately 1.4 million shares. Such
Registration Statement will automatically become effective upon filing.
Accordingly, shares registered under such Registration Statement will be,
subject to Rule 144 volume limitations applicable to affiliates, available for
sale in the open market, unless such shares are subject to vesting restrictions
or the lock-up agreements described above. In , 1999, Radio One's board
of directors granted options to purchase an aggregate of shares of
class A common stock.
84
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1999, we and the selling stockholders have agreed to sell
to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated, NationsBanc
Montgomery Securities LLC and Prudential Securities Incorporated are acting as
representatives, the following respective number of shares of class A common
stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation............................
Bear, Stearns & Co. Inc...........................................
BT Alex. Brown Incorporated.......................................
NationsBanc Montgomery Securities LLC.............................
Prudential Securities Incorporated................................
----------
Total........................................................... 6,200,000
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of class A common stock in the offering if any are
purchased other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults, the purchase commitments of non-defaulting underwriters
may be increased or the offering of class A common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase up to
620,000 additional shares from us at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of class A common stock.
The underwriters propose to offer the shares of class A common stock
initially at the public offering price on the cover page of this prospectus,
and to selling group members at that price less a concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay.
<TABLE>
<CAPTION>
Total
-----------------------------
Per Without With
Share Over-allotment Over-allotment
----- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us............................... $ $ $
Expenses payable by us.................... $ $ $
Underwriting Discounts and Commissions
paid by selling stockholders............. $ $ $
Expenses payable by selling stockholders.. $ $ $
</TABLE>
85
<PAGE>
The representatives have informed Radio One and the selling stockholders
that the underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
We intend to use more than 10% of the net proceeds from the sale of shares
of class A common stock to repay indebtedness owed by us to lenders under the
bank credit facility, including NationsBank N.A. and Credit Suisse First
Boston, New York branch, which are affiliates of NationsBanc Montgomery
Securities LLC and Credit Suisse First Boston Corporation, respectively.
Accordingly, the offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct
Rules. This rule provides generally that if more than 10% of the net proceeds
from the sale of stock, not including underwriting compensation, is paid to the
underwriters or their affiliates, the initial public offering price of the
stock may not be higher than that recommended by a "qualified independent
underwriter" meeting certain standards. Accordingly, BT Alex. Brown
Incorporated is assuming the responsibilities of acting as the qualified
independent underwriter in pricing the offering and conducting due diligence.
The initial public offering price of the shares of class A common stock is no
higher than the price recommended by BT Alex. Brown Incorporated.
We are currently in compliance in all material respects with the terms of
the credit agreement. The decision of Credit Suisse First Boston Corporation
and NationsBanc Montgomery Securities LLC to distribute the class A common
stock was made in accordance with their respective customary procedures. Credit
Suisse First Boston Corporation and NationsBanc Montgomery Securities LLC will
not receive any benefit from this offering other than their respective portions
of the underwriting discounts as set forth on the cover page of this
prospectus.
Radio One, Catherine L. Hughes, Alfred C. Liggins, III, the selling
stockholders and certain other holders of Common Stock of Radio One have agreed
that they will not offer, sell, contract to sell, announce our intention to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
SEC a registration statement under the Securities Act relating to, any
additional shares of class A common stock or securities convertible into or
exchangeable or exercisable for any of our class A common stock, without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus.
At our request, the underwriters have reserved for sale, at the initial
public offering price up to shares of class A common stock for
employees, directors and certain other persons associated with us who have
expressed an interest in purchasing class A common stock in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent such persons purchase such reserved shares. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares.
We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities under the Securities Act, or contribute to payments
which the underwriters may be required to make in respect thereof.
We have made application to list the shares of class A common stock on The
Nasdaq Stock Market's National Market under the symbol "ROIA."
Credit Suisse First Boston Corporation has provided customary financial
advisory services to Radio One, for which it has received customary
compensation and indemnification, and in the future may provide such services.
Prior to this offering, there has been no public market for the class A
common stock. The initial public offering price for the class A common stock
will be negotiated among us, the selling stockholders and the representatives.
Among the principal factors to be considered in determining the initial public
offering price will be market conditions for initial public offerings, the
history of and prospects for our business, our past and
86
<PAGE>
present operations, our past and present earnings and current financial
position, an assessment of our management, the market of securities of
companies in businesses similar to ours, the general condition of the
securities markets and other relevant factors. There can be no assurance that
the initial public offering price will correspond to the price at which the
class A common stock will trade in the public market subsequent to the offering
or that an active trading market will develop and continue after the offering.
The representatives, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended. Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the class A
common stock in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
the class A common stock originally sold by such syndicate member are purchased
in a syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the class A common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
87
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the class A common stock in Canada is being made only on
a private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the class A common stock are
effected. Accordingly, any resale of the class A common stock in Canada must be
made in accordance with applicable securities laws which will vary depending on
the relevant jurisdiction, and which may require resales to be made in
accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the class A
common stock.
Representations of Purchasers
Each purchaser of the class A common stock in Canada who receives a purchase
confirmation will be deemed to represent to us, the selling stockholders and
the dealer from whom such purchase confirmation is received that (1) such
purchaser is entitled under applicable provincial securities laws to purchase
such class A common stock without the benefit of a prospectus qualified under
such securities laws, (2) where required by law, that such purchaser is
purchasing as principal and not as agent, and (3) such purchaser has reviewed
the text above under "Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or substantial
portions of the assets of the issuer and such persons may be located out side
of Canada and, as a result, it may not be possible to satisfy a judgment
against the issuer or such persons in Canada or to enforce a judgment obtained
in Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of the class A common stock to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any class A common stock acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from Radio
One. Only one such report must be filed in respect of the class A common stock
acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of the class A common stock should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the class A common stock in their particular circumstances and with respect to
the eligibility of the class A common stock for investment by the purchaser
under relevant Canadian legislation.
88
<PAGE>
LEGAL MATTERS
Kirkland & Ellis will pass upon the legality of the common stock offered by
this prospectus and other matters specified in the underwriting agreement for
Radio One. Davis Wright and Tremaine LLP will pass upon legal matters regarding
FCC issues for Radio One. Skadden, Arps, Slate, Meagher & Flom LLP will pass
upon matters specified in the underwriting agreement for the underwriters.
EXPERTS
The audited consolidated financial statements and schedules of Radio One,
Inc. and subsidiaries as of December 31, 1997 and 1998, and for each of the
years in the three-year period ended December 31, 1998, included in the
prospectus and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The audited consolidated financial statements of Radio One of Atlanta, Inc.
and subsidiary as of December 31, 1997 and 1998, and for each of the years in
the three-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of Bell Broadcasting Company as of December
31, 1997 and for each of the years in the two-year period ended December 31,
1997, included in the prospectus and registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The audited financial statements of Allur-Detroit, Inc., as of December 31,
1997, and for the year then ended, included in the prospectus and registration
statement have been audited by Mitchell & Titus, LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of the Richmond Operations of Sinclair
Telecable, Inc. as of December 31, 1997 and 1998, and for each of the years in
the two-year period ended December 31, 1998, included in the prospectus and
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and are
included herein in reliance upon the authority of said firm as experts in
giving said report.
The audited financial statements of stations WKJS-FM and WSOJ-FM of FM 100,
Inc. as of December 31, 1998, and for the year then ended, included in the
prospectus and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto and are included herein in reliance upon the authority of said firm as
experts in giving said report.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, and, in accordance therewith, file reports, proxy
statements and other information with the SEC. Such reports, proxy statements
and other information may be inspected and copied at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048. Copies of such material can be
obtained from the Public Reference Section of the SEC upon payment of certain
fees prescribed by the SEC. The SEC's Web site contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC. The address of that site is http://www.sec.gov.
Our class A common Stock is quoted on the Nasdaq National Market and our
reports, proxy statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
89
<PAGE>
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933, as amended in respect of the class A common stock
offered pursuant to this prospectus. This prospectus, which is a part of the
registration statement, omits certain information contained in the registration
statement as permitted by the SEC's rules and regulations. For further
information with respect to Radio One and the class A common stock offered
hereby, please reference the registration statement, including its exhibits.
Statements in this prospectus concerning the contents of any contract or other
document filed with the SEC as an exhibit to the registration statement are
summaries of the material provisions of those documents and we recommend that
you also refer to those exhibits in evaluating Radio One. Copies of the
registration statement, including all related exhibits and schedules, may be
inspected without charge at the public reference facilities maintained by the
SEC, or obtained at prescribed rates from the Public Reference Section of the
SEC at the address set forth above.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Radio One, Inc. and Subsidiaries
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............. F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998.................................................... F-4
Consolidated Statements of Changes in Stockholders' Deficit for the years
ended December 31, 1996, 1997, and 1998................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Radio One of Atlanta, Inc.
Report of Independent Public Accountants................................. F-17
Consolidated Balance Sheets as of December 31, 1997 and 1998............. F-18
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998.................................................... F-19
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1997, and 1998................................. F-20
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998.................................................... F-21
Notes to Consolidated Financial Statements............................... F-22
Bell Broadcasting Company
Report of Independent Public Accountants................................. F-29
Balance Sheets as of December 31, 1997, and June 30, 1998 (unaudited).... F-30
Statements of Operations for the years ended December 31, 1996 and 1997,
and the six months ended June 30, 1997 and 1998 (unaudited)............. F-31
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, and 1997, and the six months ended June 30, 1998
(unaudited)............................................................. F-32
Statements of Cash Flows for the years ended December 31, 1996, and 1997,
and the six months ended June 30, 1997 and 1998 (unaudited)............. F-33
Notes to Financial Statements............................................ F-34
Allur-Detroit, Inc.
Report of Independent Public Accountants................................. F-39
Balance Sheets as of December 31, 1997, and September 30, 1998
(unaudited)............................................................. F-40
Statements of Operations for the year ended December 31, 1997, and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-41
Statements of Changes in Stockholders' Equity for the year ended December
31, 1997, and the nine months ended September 30, 1998 (unaudited)...... F-42
Statements of Cash Flows for the years ended December 31, 1997, and the
nine months ended September 30, 1997 and 1998 (unaudited)............... F-43
Notes to Financial Statements............................................ F-44
Richmond Operations of Sinclair Telecable, Inc.
Report of Independent Public Accountants................................. F-49
Combined Balance Sheets as of December 31, 1997 and 1998................. F-50
Combined Statements of Operations and Changes in Station Equity for the
years ended December 31, 1997 and 1998.................................. F-51
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1998................................................................ F-52
Notes to Financial Statements............................................ F-53
Stations WKJS-FM and WSOJ-FM of FM 100, Inc.
Report of Independent Public Accountants................................. F-56
Combined Balance Sheet as of December 31, 1998........................... F-57
Combined Statement of Operations and Changes in Station Deficit for the
year ended December 31, 1998............................................ F-58
Combined Statement of Cash Flows for the year ended December 31, 1998.... F-59
Notes to Financial Statements............................................ F-60
</TABLE>
F-1
<PAGE>
The accompanying consolidated financial statements do not reflect the
completion of a 34,060 for one stock split and the exercise of certain warrants
which will take place on or prior to the effective date of an offering of
common stock to the public. The following report is in the form which will be
issued by us upon completion of the two transactions above, which are described
in Note 1 to the consolidated financial statements, and assuming that from
December 31, 1998 to the date of such completion no other material events have
occurred that would affect the accompanying consolidated financial statements
or require disclosure therein:
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 11, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One,
Inc. (a Delaware corporation) and subsidiaries (the Company) as of December 31,
1997 and 1998, and the related consolidated statements of operations, changes
in stockholders' deficit and cash flows for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One,
Inc. and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Baltimore, Maryland,
, 1999
F-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 8,500,000 $ 4,455,000
Trade accounts receivable, net of allowance for
doubtful accounts of $904,000 and $1,243,000,
respectively.................................... 8,722,000 12,026,000
Prepaid expenses and other....................... 315,000 334,000
Deferred taxes................................... -- 826,000
------------ ------------
Total current assets........................... 17,537,000 17,641,000
PROPERTY AND EQUIPMENT, net........................ 4,432,000 6,717,000
INTANGIBLE ASSETS, net............................. 54,942,000 127,639,000
OTHER ASSETS....................................... 2,314,000 1,859,000
------------ ------------
Total assets................................... $ 79,225,000 $153,856,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable................................. $ 258,000 $ 1,190,000
Accrued expenses................................. 3,029,000 3,708,000
Income taxes payable............................. -- 143,000
------------ ------------
Total current liabilities...................... 3,287,000 5,041,000
LONG-TERM DEBT AND DEFERRED INTEREST, net of
current
portion........................................... 74,954,000 131,739,000
DEFERRED TAX LIABILITY............................. -- 15,251,000
------------ ------------
Total liabilities.............................. 78,241,000 152,031,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
Series A, $.01 par value, 140,000 shares
authorized, 84,843 shares
issued and outstanding.......................... 9,310,000 10,816,000
Series B, $.01 par value, 150,000 shares
authorized, 124,467 shares
issued and outstanding.......................... 13,658,000 15,868,000
STOCKHOLDERS' DEFICIT:
Common stock--class A, $.01 par value, 30,000,000
shares authorized,
33,719 shares issued and outstanding............ -- --
Common stock--class B, $.01 par value, 30,000,000
shares authorized,
and 1,560,969 shares issued and outstanding..... 16,000 16,000
Common stock--class C, $.01 par value, 30,000,000
shares authorized,
3,120,915 shares issued and outstanding......... 31,000 31,000
Additional paid-in capital....................... -- --
Accumulated deficit.............................. (22,031,000) (24,906,000)
------------ ------------
Total stockholders' deficit.................... (21,984,000) (24,859,000)
------------ ------------
Total liabilities and stockholders' deficit.... $ 79,225,000 $153,856,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Broadcast revenue, including barter
revenue of $1,122,000, $1,010,000
and $644,000, respectively........ $ 27,027,000 $ 36,955,000 $ 52,696,000
Less: Agency commissions........... 3,325,000 4,588,000 6,587,000
------------ ------------ ------------
Net broadcast revenue............ 23,702,000 32,367,000 46,109,000
------------ ------------ ------------
OPERATING EXPENSES:
Program and technical.............. 4,157,000 5,934,000 8,015,000
Selling, general and
administrative.................... 9,770,000 12,914,000 16,486,000
Corporate expenses................. 1,793,000 2,155,000 2,800,000
Depreciation and amortization...... 4,262,000 5,828,000 8,445,000
------------ ------------ ------------
Total operating expenses......... 19,982,000 26,831,000 35,746,000
------------ ------------ ------------
Operating income................. 3,720,000 5,536,000 10,363,000
INTEREST EXPENSE, including
amortization of deferred financing
costs............................... 7,252,000 8,910,000 11,455,000
OTHER (EXPENSE) INCOME, net.......... (77,000) 415,000 358,000
------------ ------------ ------------
Loss before benefit from income
taxes and extraordinary item...... (3,609,000) (2,959,000) (734,000)
BENEFIT FROM INCOME TAXES............ -- -- 1,575,000
------------ ------------ ------------
(Loss) income before extraordinary
item.............................. (3,609,000) (2,959,000) 841,000
EXTRAORDINARY ITEM:
Loss on early retirement of debt... -- 1,985,000 --
------------ ------------ ------------
Net (loss) income................ $ (3,609,000) $ (4,944,000) $ 841,000
============ ============ ============
NET LOSS APPLICABLE TO COMMON
STOCKHOLDERS........................ $ (3,609,000) $ (6,981,000) $ (2,875,000)
============ ============ ============
BASIC AND DILUTED EARNINGS PER COMMON
SHARE:
Loss before extraordinary item..... $ (.38) $ (.53) $ (.31)
============ ============ ============
Net loss........................... $ (.38) $ (.74) $ (.31)
============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted.................. 9,392,000 9,392,000 9,392,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Common Common Common Additional Total
Stock Stock Stock Paid-In Accumulated Stockholders'
Class A Class B Class C Capital Deficit Deficit
------- ------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, as of December
31, 1995............... $-- $16,000 $31,000 $1,158,000 $(12,599,000) $(11,394,000)
Net loss.............. -- -- -- -- (3,609,000) (3,609,000)
---- ------- ------- ---------- ------------ ------------
BALANCE, as of December
31, 1996............... -- 16,000 31,000 1,158,000 (16,208,000) (15,003,000)
Net loss.............. -- -- -- -- (4,944,000) (4,944,000)
Effect of conversion
to C corporation..... -- -- -- (1,158,000) 1,158,000 --
Preferred stock
dividends............ -- -- -- -- (2,037,000) (2,037,000)
---- ------- ------- ---------- ------------ ------------
BALANCE, as of December
31, 1997............... -- 16,000 31,000 -- (22,031,000) (21,984,000)
Net income............ -- -- -- -- 841,000 841,000
Preferred stock
dividends............ -- -- -- -- (3,716,000) (3,716,000)
---- ------- ------- ---------- ------------ ------------
BALANCE, as of December
31, 1998............... $-- $16,000 $31,000 $ -- $(24,906,000) $(24,859,000)
==== ======= ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................... $(3,609,000) $ (4,944,000) $ 841,000
Adjustments to reconcile net (loss)
income to net cash
from operating activities:
Depreciation and amortization..... 4,262,000 5,828,000 8,445,000
Amortization of debt financing
costs, unamortized
discount and deferred interest... 3,005,000 3,270,000 4,110,000
Loss on disposals................. 153,000 -- --
Loss on extinguishment of debt.... -- 1,985,000 --
Deferred income taxes and
reduction in valuation
reserve on deferred taxes........ -- -- (2,038,000)
Effect of change in operating
assets and liabilities--
Trade accounts receivable....... (656,000) (2,302,000) (1,933,000)
Prepaid expenses and other...... 114,000 (198,000) (4,000)
Other assets.................... (71,000) (147,000) (1,391,000)
Accounts payable................ (818,000) (131,000) 830,000
Accrued expenses................ 234,000 1,576,000 296,000
Income tax payable.............. -- -- 143,000
----------- ------------ ------------
Net cash flows from operating
activities................... 2,614,000 4,937,000 9,299,000
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.. (252,000) (2,035,000) (2,236,000)
Proceeds from disposal of property
and equipment...................... -- -- 150,000
Deposits and payments for station
purchases.......................... (1,000,000) (21,164,000) (59,085,000)
----------- ------------ ------------
Net cash flows from investing
activities................... (1,252,000) (23,199,000) (61,171,000)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt................... (2,408,000) (45,599,000) (485,000)
Proceeds from new debt.............. 51,000 72,750,000 49,350,000
Deferred debt financing costs....... -- (2,148,000) (1,038,000)
Financed equipment purchases........ -- 51,000 --
----------- ------------ ------------
Net cash flows from financing
activities................... (2,357,000) 25,054,000 47,827,000
----------- ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.......................... (995,000) 6,792,000 (4,045,000)
CASH AND CASH EQUIVALENTS, beginning
of year.............................. 2,703,000 1,708,000 8,500,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year................................. $ 1,708,000 $ 8,500,000 $ 4,455,000
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for--
Interest.......................... $ 4,815,000 $ 4,413,000 $ 7,192,000
=========== ============ ============
Income taxes...................... $ 50,000 $ -- $ 338,000
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware corporation referred to as Radio One) and its
subsidiaries, Radio One Licenses, Inc. and WYCB Acquisition Corporation
(Delaware corporations), Broadcast Holdings, Inc. (a Washington, D.C.
corporation), Bell Broadcasting Company (a Michigan corporation), Radio One of
Detroit, Inc., Allur-Detroit, Inc. and Allur Licenses, Inc. (Delaware
corporations) (collectively referred to as the Company) were organized to
acquire, operate and maintain radio broadcasting stations. The Company owns and
operates radio stations in Washington, D.C.; Baltimore, Maryland; Philadelphia,
Pennsylvania; Detroit, Michigan; and Kingsley, Michigan markets. The Company is
highly leveraged, which requires substantial semi-annual and other periodic
interest payments and may impair the Company's ability to obtain additional
working capital financing. The Company's operating results are significantly
affected by its share of the audience in markets where it has stations.
Radio One intends to offer Common A shares to the public in an initial
public offering (IPO). The proceeds of the IPO will be used to repay certain
outstanding debt, to finance pending and future acquisitions and for other
general corporate purposes. Concurrent with the IPO, Radio One intends to issue
$50,000,000 of Series C Preferred Stock and use the proceeds to redeem all of
the existing Senior Cumulative Redeemable Preferred Stock, to retire debt or to
finance pending and future acquisitions.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Radio One, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying consolidated financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Acquisitions
On December 28, 1998, Radio One purchased all of the outstanding stock of
Allur-Detroit, Inc. (Allur), which owned one radio station in Detroit,
Michigan, for approximately $26.5 million. Radio One financed this acquisition
through a combination of cash and $24.0 million borrowed under the Company's
line of credit. The acquisition of Allur resulted in the recording of
approximately $31.7 million of intangible assets (including the recording of a
deferred tax liability for the difference in book and tax basis in the assets
acquired from the Allur purchase price being in excess of the net book value of
Allur).
On June 30, 1998, Radio One purchased all of the outstanding stock of Bell
Broadcasting Company (Bell), which owned three radio stations in Michigan, for
approximately $34.2 million. Radio One financed this acquisition through a
combination of cash and approximately $25.4 million borrowed under the
Company's line of credit. The acquisition of Bell resulted in the recording of
approximately $42.5 million of intangible assets (including the recording of a
deferred tax liability for the difference in book and tax basis in the assets
acquired from the Bell purchase price being in excess of the net book value of
Bell).
On March 16, 1998, WYCB Acquisition Corporation, an unrestricted subsidiary
of Radio One, acquired all the stock of Broadcast Holdings, Inc. for
$3,750,000. The acquisition was financed with a promissory note for $3,750,000
at 13%, due 2001, which pays quarterly cash interest payments at an annual rate
of 10% through 2001, with the remaining interest being added to the principal.
F-7
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
On February 8, 1997, under a local marketing agreement with the former
owners of WDRE-FM licensed to Jenkintown, Pennsylvania, Radio One began to
provide programming to and selling advertising for WDRE-FM. On May 19, 1997,
Radio One acquired the broadcast assets of WDRE-FM for approximately
$16,000,000. In connection with the purchase, Radio One entered into a three-
year noncompete agreement totaling $4,000,000 with the former owners. Radio One
financed this purchase with a portion of the proceeds from the issuance of
approximately $85,500,000 of 12% Senior Subordinated Notes due 2004. Following
this acquisition, Radio One converted the call letters of the radio station
from WDRE-FM to WPHI-FM.
The unaudited pro forma summary consolidated results of operations for the
years ended December 31, 1996, 1997 and 1998, assuming the acquisitions of
WPHI-FM, WYCB-AM, Bell Broadcasting and Allur-Detroit had occurred in the
beginning of the fiscal years, are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net broadcast revenue............. $33,021,000 $39,475,000 $50,988,000
Operating expenses, excluding
depreciation and amortization.... 23,650,000 27,077,000 31,435,000
Depreciation and amortization..... 12,742,000 12,165,000 12,115,000
Interest expense.................. 14,301,000 14,295,000 15,114,000
Other (expense) income, net....... 16,000 666,000 322,000
(Benefit) provision for income
taxes............................ (7,979,000) (6,360,000) (4,064,000)
Extraordinary loss................ -- 1,985,000 --
----------- ----------- -----------
Net loss........................ $(9,677,000) $(9,021,000) $(3,290,000)
=========== =========== ===========
</TABLE>
On November 23, 1998, Radio One signed an agreement to purchase the assets
of a radio station located in the St. Louis area, for approximately $13.6
million. Radio One made a deposit of approximately $700,000 towards the
purchase price. This deposit is included in other assets in the accompanying
consolidated balance sheet as of December 31, 1998.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
F-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Company's
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Depreciation
---------- ----------- -------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land................................. $ 117,000 $ 590,000 --
Building and improvements............ 148,000 248,000 31 years
Transmitter towers................... 2,146,000 2,282,000 7 or 15 years
Equipment............................ 3,651,000 5,609,000 5 to 7 years
Leasehold improvements............... 1,757,000 2,577,000 Life of Lease
---------- -----------
7,819,000 11,306,000
Less: Accumulated depreciation....... 3,387,000 4,589,000
---------- -----------
Property and equipment, net........ $4,432,000 $ 6,717,000
========== ===========
</TABLE>
Depreciation expenses for the fiscal years ended December 31, 1996, 1997 and
1998, were $706,000, $746,000 and $1,202,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued
expenses, long-term debt and preferred stock, all of which the carrying amounts
approximate fair value except for the Senior Subordinated Notes as of December
31, 1998, which have a fair value of approximately $84.5 million, as compared
to a carrying value of $78.5 million. The Company has estimated the fair value
of the debt, based on its estimate of what rate it could have issued that debt
as of December 31, 1998.
Comprehensive Income
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income" and
has determined that the Company does not have any comprehensive income
adjustments for the periods presented.
F-9
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
that the Company has only one segment, radio broadcasting. The Company came to
this conclusion because the Company has one product or service, has the same
type of customer and operating strategy in each market, operates in one
regulatory environment, has only one management group that manages the entire
Company and provides information on the Company's results as one segment to the
key decision-maker to make decisions. All of the Company's revenue is derived
from the eastern half of the United States.
Earnings Available for Common Stockholders
The Company has certain senior cumulative redeemable preferred stock
outstanding which pays dividends at 15% per annum (see Note 3). The Company
accretes dividends on this preferred stock, which is payable when the preferred
stock is redeemed. The earnings available for common stockholders for the years
ended December 31, 1997 and 1998, is the net loss or income for each of the
years, less the accreted dividend of $2,037,000 and $3,716,000 during 1997 and
1998, respectively on the preferred stock.
Earnings Per Share
Earnings per share are based on the weighted average number of common and
diluted common equivalent shares for stock options and warrants outstanding
during the period the calculation is made, divided into the earnings available
for common stockholders. Diluted common equivalent shares consist of shares
issuable upon the exercise of stock options and warrants, using the treasury
stock method at the estimated IPO price. All warrants outstanding to acquire
common stock as of December 31, 1996, 1997 and 1998, will be exercised prior to
the IPO and have been reflected in the calculation of earnings per share as if
the stock granted from the exercise was outstanding for all periods presented.
The Company also issued stock to an employee subsequent to year-end at a price
below market value. The stock issued has been reflected in the earnings per
share calculation as if it was outstanding for all periods presented (see Note
8). The weighted average shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Common stock outstanding..................... 4,716,000 4,716,000 4,716,000
Common stock issued from exercise of
warrants.................................... 4,625,000 4,625,000 4,625,000
Stock issued subsequent to year end.......... 51,000 51,000 51,000
--------- --------- ---------
Weighted average shares outstanding for both
basic and diluted earnings per share........ 9,392,000 9,392,000 9,392,000
========= ========= =========
</TABLE>
The Company effected a 34,060 for one stock split, effective , 1999,
in conjunction with the planned IPO. All share data included in the
accompanying consolidated financial statements and notes thereto are as if the
stock split had occurred prior to the periods presented.
Also, effective February 25, 1999, the Company converted certain class A
common stock held by the principal stockholders to class B common stock which
will have ten votes per share, as compared to class A common stock which has
one vote per share, and certain of their class A common stock to class C common
stock. Class C common stock will have no voting rights except as required by
Delaware law. All share data included in the accompanying consolidated
financial statements and notes thereto are as if the stock conversion had
occurred prior to the periods presented.
F-10
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Amortization
----------- ------------ ------------
<S> <C> <C> <C>
FCC broadcast license................ $56,179,000 $103,792,000 7-15 Years
Goodwill............................. 7,609,000 39,272,000 15 Years
Debt financing....................... 2,147,000 3,186,000 Life of Debt
Favorable transmitter site and other
intangibles......................... 1,922,000 1,924,000 6-17 Years
Noncompete agreement................. 4,900,000 4,000,000 3 Years
----------- ------------
Total.............................. 72,757,000 152,174,000
Less: Accumulated amortization..... 17,815,000 24,535,000
----------- ------------
Net intangible assets.............. $54,942,000 $127,639,000
=========== ============
</TABLE>
Amortization expense for the fiscal years ended December 31, 1996, 1997 and
1998, was $3,556,000, $5,082,000 and $7,243,000, respectively. The amortization
of the deferred financing cost was charged to interest expense.
3. DEBT AND SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
As of December 31, 1997 and 1998, the Company's outstanding debt is as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Senior subordinated notes (net of $10,640,000 and
$7,020,000 unamortized discounts, respectively)... $74,838,000 $ 78,458,000
Line of credit..................................... -- 49,350,000
WYCB note payable and deferred interest............ -- 3,841,000
Other notes payable................................ 35,000 23,000
Capital lease obligations.......................... 81,000 67,000
----------- ------------
Total, noncurrent................................ $74,954,000 $131,739,000
=========== ============
</TABLE>
Senior Subordinated Notes
To finance the WPHI-FM acquisition (as discussed in Note 1) and to refinance
certain other debt, Radio One issued approximately $85,500,000 of 12% Senior
Subordinated notes due 2004. The notes were sold at a discount, with the net
proceeds to Radio One of approximately $72,750,000. The notes pay cash interest
at 7% per annum through May 15, 2000, and at 12% thereafter. In connection with
this debt offering, Radio One retired approximately $45,600,000 of debt
outstanding under a NationsBank credit agreement with the proceeds from the
offering. Radio One also exchanged approximately $20,900,000 of 15% Senior
Cumulative Redeemable Preferred Stock which must be redeemed by May 2005, for
an equal amount of Radio One's then outstanding subordinated notes and accrued
interest.
The 12% notes due 2004 are redeemable at any time and from time to time at
the option of the Company, in whole or in part, on or after May 15, 2001 at the
redemption prices set forth in the 12% notes due 2004, plus accrued and unpaid
interest to the date of redemption. In addition, on or prior to May 15, 2000,
the Company may redeem, at its option, up to 25% of the aggregate original
principal amount of the 12% notes due 2004 with the net proceeds of one or more
Public Equity Offerings at 112% of the Accreted Value thereof, together with
accrued and unpaid interest, if any, to the date of redemption, as long as at
least approximately $64.1 million of the aggregate principal amount of the 12%
notes due 2004 remains outstanding after each
F-11
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
such redemption. Upon a Change of Control (as defined in the indenture), the
Company must commence an offer to repurchase the 12% notes due 2004 at 101% of
the Accreted Value thereof, plus accrued and unpaid interest, if any, to the
date of repurchase.
Lines of Credit
To finance the Bell Broadcasting and Allur-Detroit Acquisitions during 1998,
Radio One borrowed $49,350,000 from Credit Suisse First Boston, New York
Branch, and other financial institutions which is to mature on December 31,
2003. This credit agreement bears interest at the Eurodollar rate plus an
applicable margin. The average interest rate for the year ended December 31,
1998, was 7.58%. This credit agreement is secured by the property of the
Company (other than Unrestricted Subsidiaries), and interest and proceeds of
real estate and Key Man life insurance policies. During 1998, the month-end
weighted average and the highest month-end balances were $28,779,000 and
$49,350,000, respectively. Subsequent to December 31, 1998, the Company
increased its availability under the line of credit.
As of December 31, 1997, Radio One had a $7,500,000 outstanding line of
credit with NationBank. The interest rate was a base rate plus 1.375%. Radio
One's collateral for this line of credit consisted of liens and security
interest in all common and voting securities convertible or exchangeable into
common stock of the Company and substantially all of its assets (other than
WYCB Acquisition). This line of credit was not drawn on as of December 31,
1997. NationsBank was a participating financial institution in the line of
credit above, and this line of credit agreement was terminated when the Company
entered into the line of credit agreement with Credit Suisse First Boston and
one other financial institution, as discussed above.
During 1995, through a revolving credit agreement (the NationsBank Credit
Agreement) with NationsBank of Texas, N.A. and the other lenders who were
parties, Radio One borrowed $53,000,000 which was to mature on March 31, 2002.
The NationsBank Credit Agreement was refinanced on May 19, 1997, as part of the
Senior Subordinated Notes financing discussed above. The NationsBank Credit
Agreement bore interest at the LIBOR 30-day rate, plus an applicable margin.
The average interest rate for the years ending December 31, 1996 and 1997, was
8.25% and 9.28%, respectively. The credit agreement was secured by all property
of the Company (other than unrestricted subsidiaries) and interest and proceeds
of real estate and Key Man life insurance policies.
Senior Cumulative Redeemable Preferred Stock
On May 19, 1997, concurrent with the debt issuance, all of the holders of
Radio One Subordinated Promissory Notes converted all of their existing
subordinated notes consisting of approximately $17,000,000, together with any
and all accrued interest thereon of approximately $3,900,000 and outstanding
warrants, for shares of Senior Cumulative Redeemable Preferred Stock, which
must be redeemed in May 2005, and stock warrants to purchase 147.04 shares of
common stock. The Senior Cumulative Redeemable Preferred Stock can be redeemed
at 100% of its liquidation value, which is the principal and accreted
dividends. The dividends on each share accrues on a daily basis at a rate of
15% per annum. Preferred stock dividends of approximately $2,037,000 and
$3,716,000 were accrued during the years ended December 31, 1997 and 1998,
respectively. If Radio One does not redeem all of the issued and outstanding
preferred shares on the mandatory redemption date or upon the occurrence of an
event of noncompliance, the holders may elect to have the Dividend Rate
increase to 18% per annum. In the event Radio One does not meet any required
performance target relating exclusively to the operation of WPHI-FM, the
Dividend Rate for each preferred share shall be increased to 17% per annum.
Other Notes Payable
During 1996, Radio One entered into two notes totaling $51,000 with
NationsBank to purchase vehicles. These notes bear interest at 8.74% and 8.49%,
require monthly principal and interest payments of $789 and $471 and mature on
April 30, 2000, and December 2, 2000.
F-12
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Refinancing of Debt
During 1997, Radio One retired $45,600,000 of outstanding debt. Associated
with the retirement of the debt, Radio One incurred certain early prepayment
penalties and legal fees, and had to write-off certain deferred financing costs
associated with the debt retired. These costs amounted to $1,985,000 and were
recorded as an extraordinary item in the accompanying statements of operations.
4. COMMITMENTS AND CONTINGENCIES:
Leases
Radio One has various operating leases for office space, studio space,
broadcast towers and transmitter facilities which expire on various dates
between May 1999 through October 15, 2003. One of these leases is for office
and studio space in Baltimore, Maryland, and is with a partnership in which two
of the partners are stockholders of the Company (see Note 6).
The following is a schedule of the future minimum rental payments required
under the operating leases that have an initial or remaining noncancelable
lease term in excess of one year as of December 31, 1998.
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999........................................................ $1,007,000
2000........................................................ 1,055,000
2001........................................................ 1,075,000
2002........................................................ 838,000
2003........................................................ 830,000
Thereafter.................................................. 4,578,000
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997 and 1998, was
$777,000, $809,000 and $888,000, respectively.
FCC Broadcast Licenses
Each of the Company's radio stations operates pursuant to one or more
licenses issued by the Federal Communications Commission (FCC) that have a
maximum term of eight years prior to renewal. The Company's radio operating
licenses expire at various times from October 1, 2003, to August 1, 2006.
Although the Company may apply to renew its FCC licenses, third parties may
challenge the Company's renewal applications. The Company is not aware of any
facts or circumstances that would prevent the Company from having its current
licenses renewed.
Litigation
The Company has been named as a defendant in several legal actions occurring
in the ordinary course of business. It is management's opinion, after
consultation with its legal counsel, the outcome of these claims will not have
a material adverse effect on the Company's financial position or results of
operations.
5. INCOME TAXES:
Effective January 1, 1996, Radio One elected to be treated as an S
Corporation under Subchapter S of the Internal Revenue Code. As an S
Corporation, the stockholders separately account for their pro-rata share of
Radio One's income, deductions, losses and credits. Effective May 19, 1997, the
Company's S Corporation status was terminated.
F-13
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
In connection with the conversion to a C corporation, in accordance with SEC
Staff Accounting Bulletin 4.B, Radio One transferred the amount of the
undistributed losses up to the amount of additional paid-in capital at the date
of conversion to additional paid-in capital.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
During 1998, the Company acquired the stock of three companies. Associated
with these stock purchases, the Company allocated the purchase price to the
related assets acquired, with the excess purchase price allocated to goodwill.
In a stock purchase, for income tax purposes, the underlying assets of the
acquired companies retain their historical tax basis. Accordingly, the Company
recorded a deferred tax liability of approximately $16,863,000 related to the
difference between the book and tax basis for all of the assets acquired
(excluding goodwill). The result of recording this deferred tax liability is
reflected as additional goodwill of $16,863,000 related to these acquisitions.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the years ended December 31, 1996, 1997 and 1998, is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax (@ 35% rate).......... $(1,263,000) $(1,730,000) $ (257,000)
Effect of state taxes, net of
federal............................ (217,000) (245,000) (29,000)
Establishment of S corporation loss
to its stockholders................ 1,480,000 984,000 --
Effect of net deferred tax asset in
conversion to
C corporation...................... -- (1,067,000) --
Nondeductible goodwill.............. -- -- 769,000
Valuation reserve................... -- 2,058,000 (2,058,000)
----------- ----------- -----------
Benefit for income taxes.......... $ -- $ -- $(1,575,000)
=========== =========== ===========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current.......................................... $ -- $ 463,000
Deferred......................................... (991,000) 20,000
Establishment of net deferred tax asset in
conversion to C corporation..................... (1,067,000) --
Valuation reserve................................ 2,058,000 (2,058,000)
----------- -----------
Benefit for income taxes....................... $ -- $(1,575,000)
=========== ===========
</TABLE>
F-14
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Deferred tax assets--
FCC and other intangibles amortization.......... $ 246,000 $ 1,152,000
Reserve for bad debts........................... 353,000 473,000
NOL carryforward................................ 1,746,000 400,000
Accruals........................................ -- 268,000
Barter activity................................. -- 85,000
Interest expense................................ -- 479,000
Other........................................... 2,000 20,000
----------- ------------
Total deferred tax assets..................... 2,347,000 2,877,000
----------- ------------
Deferred tax liabilities--
FCC license..................................... -- (16,525,000)
Depreciation.................................... (279,000) (539,000)
Other........................................... (10,000) (238,000)
----------- ------------
Total deferred tax liabilities................ (289,000) (17,302,000)
----------- ------------
Net deferred tax asset (liability)................ 2,058,000 (14,425,000)
Less: Valuation reserve........................... (2,058,000) --
----------- ------------
Net deferred taxes included in the accompanying
consolidated balance sheets...................... $ -- $(14,425,000)
=========== ============
</TABLE>
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During the year ended December 31, 1998, this valuation allowance was
reversed as the deferred tax assets were likely to be realized.
During 1998, the Company utilized its entire NOL carryforward, but acquired
an approximate $1,200,000 net operating loss from the purchase of Allur-
Detroit, Inc. This net operating loss acquired can only be utilized as Allur-
Detroit, Inc. has taxable income.
6. RELATED PARTY TRANSACTIONS:
Radio One leases office space for $8,000 per month from a partnership in
which two of the partners are stockholders of Radio One (Note 4). Total rent
paid to the stockholders for fiscal years 1996, 1997 and 1998, was $96,000,
$96,000 and $96,000, respectively. Radio One also has a net receivable as of
December 31, 1997 and 1998, of approximately $68,000 and $4,000, respectively,
due from Radio One of Atlanta, Inc. (ROA), of which an executive officer and
stockholder of Radio One is a major stockholder of ROA. Effective January 1,
1998 Radio One charged ROA a management fee of $300,000 per year, and prior to
January 1, 1998, the fee was $100,000 per year.
The stockholders of Radio One of Atlanta, Inc. have agreed in principle to
sell their shares of Radio One of Atlanta, Inc. to the Company in exchange for
shares of the Company's Common Stock.
As of December 31, 1998, the Company has a loan outstanding of $380,000, and
accrued interest of $7,000 from an officer. The loan is due May 2003 and bears
interest at 5.6%.
F-15
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
7. PROFIT SHARING:
Radio One has a 401(k) profit sharing plan for its employees. Radio One can
contribute to the plan at the discretion of its board of directors. Radio One
made no contribution to the plan during fiscal year 1996, 1997 or 1998.
8. SUBSEQUENT EVENTS:
In January 1999, the Company granted shares of common stock of the Company
to an officer of the Company. These shares will vest over three years. The
Company recognized compensation expense of approximately $200,000 during 1999,
which is the difference between the fair value of the stock on the grant date
and the exercise price of stock.
On February 26, 1999, Radio One signed an asset purchase agreement for the
broadcasting assets of two radio stations located in Richmond, Virginia, for
approximately $12,000,000. The Company expects to complete this transaction
during the second quarter of 1999.
On February 10, 1999, Radio One signed an agreement to purchase the assets
of a radio station located in the Richmond, Virginia, area for approximately
$4,600,000. Radio One made a deposit of $200,000 related to this purchase.
In February 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of two radio stations located in Cleveland, Ohio, for
approximately $20,000,000. The Company expects to complete this transaction
during the first half of 1999.
In March 1999, Radio One signed a letter of intent to purchase the
broadcasting assets of four radio stations located in Richmond, Virginia for
approximately $34,000,000. The Company expects to complete this transaction
during the first half of 1999.
In March 1999, the Company adopted a stock option and grant plan which
provides for the issuance of qualified and nonqualified stock options and
grants to full-time key employees. The Plan allows the issuance of common stock
at the discretion of the Company's board of directors. There are no options
currently outstanding under this plan.
During 1999, the Company made a $1,000,000 investment in PNE Media Holdings,
LLC, a privately-held outdoor advertising company.
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Radio One of Atlanta, Inc.:
We have audited the accompanying consolidated balance sheets of Radio One of
Atlanta, Inc. (a Delaware corporation) and subsidiary as of December 31, 1997
and 1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Radio One
of Atlanta, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
February 19, 1999
F-17
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 1,117,000 $ 1,711,000
Trade accounts receivable, net of allowance for
doubtful accounts of $112,000 and $312,000........ 1,259,000 2,479,000
Prepaid expenses and other......................... 59,000 82,000
Due from Mableton.................................. 77,000 120,000
Income tax receivable.............................. -- 164,000
----------- -----------
Total current assets............................. 2,512,000 4,556,000
PROPERTY AND EQUIPMENT, net.......................... 585,000 1,758,000
INTANGIBLE ASSETS, net............................... 10,994,000 10,867,000
OTHER ASSETS......................................... 112,000 40,000
DEFERRED TAXES....................................... -- 60,000
----------- -----------
Total assets..................................... $14,203,000 $17,281,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 108,000 $ 276,000
Accrued expenses................................... 782,000 909,000
Current portion of long-term debt.................. 568,000 327,000
Due to affiliate................................... 68,000 4,000
----------- -----------
Total current liabilities........................ 1,526,000 1,516,000
LONG-TERM DEBT AND DEFERRED INTEREST, net of current
portion............................................. 13,398,000 15,525,000
----------- -----------
Total liabilities................................ 14,924,000 17,041,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 14,670 shares
authorized, 10,000 shares issued and outstanding.. 10,000 10,000
Additional paid-in capital......................... 978,000 1,390,000
Accumulated deficit................................ (1,709,000) (1,160,000)
----------- -----------
Total stockholders' (deficit) equity............. (721,000) 240,000
----------- -----------
Total liabilities and stockholders' equity....... $14,203,000 $17,281,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-18
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
REVENUE:
Broadcast revenue, including barter
revenue of $112,000, $86,000 and
$51,000, respectively.................. $4,257,000 $6,525,000 $11,577,000
Less: Agency commissions................ 497,000 794,000 1,437,000
---------- ---------- -----------
Net broadcast revenue................. 3,760,000 5,731,000 10,140,000
---------- ---------- -----------
OPERATING EXPENSES:
Program and technical................... 1,017,000 1,432,000 1,418,000
Selling, general and administrative..... 1,426,000 1,994,000 4,111,000
Corporate expenses...................... 241,000 637,000 667,000
Depreciation and amortization........... 429,000 577,000 896,000
---------- ---------- -----------
Total operating expenses.............. 3,113,000 4,640,000 7,092,000
---------- ---------- -----------
Operating income...................... 647,000 1,091,000 3,048,000
INTEREST EXPENSE, including amortization
of deferred financing costs.............. 839,000 1,663,000 2,007,000
OTHER EXPENSES, net....................... -- 111,000 (7,000)
---------- ---------- -----------
(Loss) income before provision for
income taxes......................... (192,000) (683,000) 1,048,000
PROVISION FOR INCOME TAXES................ -- -- 499,000
---------- ---------- -----------
Net (loss) income..................... $ (192,000) $ (683,000) $ 549,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-19
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Total
Additional Stockholders'
Common Paid-In Accumulated (Deficit)
Stock Capital Deficit Equity
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995....... $ -- $ -- $ (834,000) $ (834,000)
Net loss....................... -- -- (192,000) (192,000)
------- ---------- ----------- -----------
BALANCE, December 31, 1996....... -- -- (1,026,000) (1,026,000)
Net loss....................... -- -- (683,000) (683,000)
Issuance of stock options below
market........................ -- 264,000 -- 264,000
Tax benefit of issuance of
stock options below market.... -- 106,000 -- 106,000
Allocation for stock issued in
conjunction with debt......... -- 608,000 -- 608,000
Issuance of common stock....... 10,000 -- -- 10,000
------- ---------- ----------- -----------
BALANCE, December 31, 1997....... 10,000 978,000 (1,709,000) (721,000)
Net income..................... -- -- 549,000 549,000
Issuance of stock options below
market........................ -- 294,000 -- 294,000
Tax benefit of issuance of
stock options below market.... -- 118,000 -- 118,000
------- ---------- ----------- -----------
BALANCE, December 31, 1998....... $10,000 $1,390,000 $(1,160,000) $ 240,000
======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-20
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $(192,000) $ (683,000) $ 549,000
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization........... 429,000 577,000 896,000
Amortization of debt financing costs and
unamortized discount................... 399,000 172,000 630,000
Compensation expense from stock options
granted................................ -- 264,000 294,000
Loss on disposals....................... -- 157,000 --
Deferred tax liability.................. -- -- 58,000
Effect of change in operating assets and
liabilities--
Trade accounts receivable............. (774,000) (243,000) (1,220,000)
Prepaid expenses and other............ (16,000) (4,000) (23,000)
Due from Mableton..................... -- (77,000) (43,000)
Income tax receivable................. -- -- (164,000)
Other assets.......................... -- (112,000) 72,000
Accounts payable...................... (22,000) 97,000 168,000
Accrued expenses...................... 423,000 386,000 127,000
Due to affiliate...................... (19,000) (10,000) (64,000)
--------- ---------- ----------
Net cash flows from operating
activities......................... 228,000 524,000 1,280,000
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (235,000) (385,000) (1,242,000)
Acquisition of Dogwood.................... -- (6,792,000) --
Acquisition of intangibles................ -- -- (678,000)
--------- ---------- ----------
Net cash flows from investing
activities......................... (235,000) (7,177,000) (1,920,000)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issuance............... -- 7,577,000 2,000,000
Repayment of debt......................... -- -- (744,000)
Deferred debt financing costs............. -- (60,000) (22,000)
Issuance of common stock.................. -- 10,000 --
--------- ---------- ----------
Net cash flows from financing
activities......................... -- 7,527,000 1,234,000
--------- ---------- ----------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS........................... (7,000) 874,000 594,000
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 250,000 243,000 1,117,000
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of period.... $ 243,000 $1,117,000 $1,711,000
========= ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.................... $ 441,000 $1,305,000 $1,616,000
========= ========== ==========
Income taxes paid......................... $ -- $ -- $ 499,000
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-21
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One of Atlanta, Inc. (the Company) owns and operates a radio station
serving the Atlanta, Georgia, market, and its subsidiary, Dogwood
Communications, Inc. (Dogwood) owns a radio station serving the Atlanta,
Georgia market. The Company started operations in June, 1995. The Company is
highly leveraged, which requires substantial interest payments and may impair
the Company's ability to obtain additional financing. The Company's operating
results are significantly affected by its market share in the Atlanta, Georgia
market.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiary, Dogwood (see Note 2). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Company's
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------- Period of
1997 1998 Depreciation
-------- ---------- -------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Transmitter towers....................... $335,000 $ 493,000 7 Years
Equipment................................ 364,000 967,000 5 to 7 Years
Leasehold improvements................... 14,000 14,000 Life of Lease
Furniture and fixtures................... -- 185,000 5 to 7 Years
Construction in progress................. -- 296,000
-------- ----------
713,000 1,955,000
Less: Accumulated depreciation........... 128,000 197,000
-------- ----------
Property and equipment, net............ $585,000 $1,758,000
======== ==========
</TABLE>
Depreciation expense for the fiscal years ended December 31, 1996, 1997 and
1998, was $38,000, $64,000 and $69,000, respectively.
F-22
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Organizational Costs
As of December 31, 1998, Dogwood had $24,000 of unamortized organization
costs. In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-5 (the "SOP") regarding financial reporting on the costs of start-up
activities. Under the SOP, organizational costs are considered start-up costs
and, commencing with fiscal years beginning after December 15, 1998, entities
are required to expense such costs as they are incurred. The Company decided to
expense the unamortized organizational costs as of December 31, 1998.
Revenue Recognition
In accordance with industry practice, revenue for commercial broadcasting
advertisements is recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used or received. Deferred barter revenue is recognized as the related
advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivable, accounts payable, accrued
expenses, and long-term debt, all of which the carrying amounts approximate
fair value.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements in
order to conform with the 1998 presentation.
Comprehensive Income
The Company has adopted SFAS, No. 130, "Reporting Comprehensive Income." The
Company does not have any comprehensive income adjustments.
Segment Reporting
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998, and has determined
the Company has only one segment, radio broadcasting.
F-23
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. DOGWOOD COMMUNICATIONS, INC.:
In April 1997, the Company's founder and stockholder transferred his 33 1/3%
ownership interest in Dogwood to the Company in return for the Company assuming
responsibility for certain liabilities of Dogwood. Concurrent with the transfer
of ownership, the Company contributed approximately $6 million to Dogwood to
retire Dogwood's outstanding debt. This stockholder also assigned to the
Company his option to purchase the portion of Dogwood owned by others. The
Company exercised the option to purchase up to 80% of Dogwood during 1998, for
$100,000. The Company intends to exercise its option to purchase the remaining
20% for $3.5 million during 1999.
The Company owns 33 1/3% of Dogwood, it has the ability to acquire an
additional 46 2/3% for $100,000, it has 45 1/2% of the voting control of
Dogwood, and it programs the station owned by Dogwood through a local marketing
agreement (LMA). During the years ended December 31, 1997 and 1998, Dogwood's
primary activity was an LMA of the station to the Company (the station went on
the air on December 16, 1997). As the Company controls Dogwood's operations,
Dogwood has been consolidated with the Company in the accompanying financial
statements.
3. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------- Period of
1997 1998 Amortization
----------- ----------- ------------
<S> <C> <C> <C>
Debt financing costs.................... $ 313,000 $ 335,000 Life of debt
FCC broadcast license and other......... 11,602,000 12,280,000 15 Years
Organizational costs.................... 203,000 -- 5 Years
----------- -----------
Total................................. 12,118,000 12,615,000
Less: Accumulated amortization.......... 1,124,000 1,748,000
----------- -----------
Net intangible assets................. $10,994,000 $10,867,000
=========== ===========
</TABLE>
Amortization expense for the years ended December 31, 1996, 1997 and 1998,
was $391,000, $513,000 and $827,000, respectively. The amortization of the debt
financing costs was charged to interest expense.
F-24
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. LONG-TERM DEBT:
The Company is obligated under a long-term senior note and various
subordinated notes payable as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Allied Investment Corporation and its affiliates
(senior)........................................... $10,000,000 $12,000,000
Alta Subordinated Debt Partners III, L.P. (net of
$508,000 and $360,000 of unamortized discount
allocated to stock issuance)....................... 1,069,000 1,217,000
Syncom Capital Corporation (subordinate)............ 1,000,000 1,000,000
Shareholder (subordinate)........................... 1,000,000 960,000
Design Media, Inc. (subordinate).................... 235,000 --
Accrued interest on senior and subordinated notes... 662,000 675,000
----------- -----------
Total............................................. 13,966,000 15,852,000
Less: Current portion of long-term debt............. 568,000 327,000
----------- -----------
Total............................................. $13,398,000 $15,525,000
=========== ===========
</TABLE>
Allied Investment Corporation Debt
The start-up of the Company was partially financed through a $4,000,000
long-term debt agreement with Allied Investment Corporation and certain of its
affiliates (collectively Allied). The loan bore interest at 14%. Terms of the
note required only partial interest payments until January 1, 1997.
In April 1997, the Company renegotiated the prior Allied debt. In connection
with that renegotiation, Allied amended and restated the prior Allied debt to
provide the Company and Dogwood (see Note 2) to become co-borrowers with
respect to the $4,000,000 debt and to jointly borrow an additional $6,000,000.
In connection with this amended and restated loan, new senior secured
debentures totaling $10,000,000 were issued jointly by the Company and Dogwood,
whereby the Company will carry the debt on its books and Dogwood will act as
the guarantor. The agreements have an interest rate that ranges from 12.5% to
13.5% and matures on March 1, 2001. Interest only payments are due monthly
until May 1, 1999. Subsequent to that date, monthly principal and interest
payments are due. Also, as part of the renegotiation, the Company signed notes
for interest that had accrued but was unpaid as of December 31, 1996, on the
prior Allied debt.
In September 1998, the Company borrowed an additional $2,000,000 from
Allied. This debt has an interest rate ranging from 12.5% to 13.5%, and
principal and interest payments are due monthly until the debt matures on March
1, 2001.
In April 1997, the Company also amended and restated its Security Agreement
with Allied which grants them a security interest in all of the Company's
collateral, which includes all tangible and intangible property, all the issued
and outstanding stock of the Company, and the Company's rights and interest in
Dogwood.
The prior Allied debt was issued with detachable warrants that granted
Allied the right to acquire an equity interest in the Company. The warrants
have an aggregate exercise price of $100 per share. During 1997, the warrants
were exercised and the Company issued Allied 1,430 shares of common stock.
Subordinated Notes
In April 1997, the Company also entered into a $1,577,000 Senior Secured
Subordinated Promissory Note with Alta Subordinated Debt Partners III, L.P. The
note has an interest rate of 11%, and the unpaid principal
F-25
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and accrued interest on the note is due on April 1, 2001. The Company also
issued 1,500 shares of common stock in connection with the note. The Company
allocated the proceeds between debt and additional paid-in capital, based on
the pro-rata value of the debt and the common stock. As such, $969,000 was
assigned to the debt and $608,000 was assigned to the value of the common
stock. The value assigned to the common stock was recorded as an increase in
additional paid-in capital. The value assigned to the debt was less than the
face value, and such discount will be amortized over the life of the related
debt using the effective interest method.
The Syndicated Communications Venture Partners II, L.P. (Syncom) debt bears
an interest rate of 11% on the original principal balance of $1,000,000. In
April 1997, the Company amended the subordinated note with Syncom. Under the
new terms of the agreement, interest accrues and is added to the principal
balance, except that beginning with the period of June 20, 1998, the Company is
required to make $18,958 monthly payments. Unpaid principal and accrued
interest is due April 1, 2001.
During 1995, the Syncom note was issued with detachable stock warrants
allowing Syncom to purchase 2,400 shares of the Company for a purchase price of
$100. During 1997, the warrants were exercised and the Company issued Syncom
2,400 shares of common stock.
This note is also secured by a security agreement for the property and
equipment of the Company.
The Company has a note payable to its shareholder of $1,000,000, which bears
interest at 8%. Interest only payments were made monthly until July 1, 1998. At
that time, monthly principal and interest payments of $12,133 began. Unpaid
principal is due June 20, 2002.
The Design Media, Inc.'s note of $235,000 bore interest at 8%. Interest only
payments were made monthly until July 1, 1998. During 1998, the note was repaid
in full.
The aggregate maturities of debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year Total
---- -----------
<S> <C>
1999........................................................... $ 327,000
2000........................................................... 1,620,000
2001........................................................... 13,175,000
2002........................................................... 730,000
-----------
Total........................................................ $15,852,000
===========
</TABLE>
5. LEASES:
The Company leases office space which expires in October 2004 and broadcast
towers which expire through December 2009.
The following is a schedule of the future minimum rental payments required
under the operating leases that have an initial or remaining noncancellable
lease term in excess of one year as of December 31, 1998:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999.............................................................. $170,000
2000.............................................................. 163,000
2001.............................................................. 164,000
2002.............................................................. 170,000
2003.............................................................. 170,000
Thereafter........................................................ 259,000
</TABLE>
F-26
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rent expense for the years ending December 31, 1996, 1997 and 1998,
was $54,000, $57,000 and $93,000, respectively.
6. STOCK OPTION PLAN:
During 1997, the Company granted stock options to an officer of the Company
for up to 700 shares of the Company's common stock for $1.00 each. Of the 700
shares, 400 shares vested immediately and were exercised during 1997. The
officer was granted the remaining options after certain performance results
were achieved during 1998. These options granted in 1998 vested immediately. As
the options to acquire 400 shares and 300 shares granted and vested during 1997
and 1998, respectively, were significantly below their estimated fair market
value, the Company recognized compensation expense of $264,000 and $294,000
during 1997 and 1998, respectively. Compensation expense represented the
difference between the estimated fair market value of the stock and the
exercise price. The Company also recognized an income tax benefit of $106,000
and $118,000 during 1997 and 1998, respectively, related to the options, which
has been recorded as additional paid-in capital.
7. INCOME TAXES:
Effective March 31, 1997, the Company converted from an S corporation to a C
corporation. At the date of conversion, the Company had no additional paid-in
capital to convert to retained earnings.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the years ended December 31, 1996, 1997 and 1998, is
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- --------
<S> <C> <C> <C>
Statutory tax (@ 35% rate)................... $(67,000) $(239,000) $367,000
Effect of state taxes, net of federal........ (9,000) (32,000) 42,000
Nondeductible amortization................... -- -- 154,000
Effect of losses while an S corporation...... 76,000 264,000 --
Establish benefit for deferred taxes at C
corporation
Conversion.................................. -- (57,000) --
Valuation reserve............................ -- 64,000 (64,000)
-------- --------- --------
Provision for income taxes................. $ -- $ -- $499,000
======== ========= ========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current................................................ $ -- $335,000
Deferred............................................... (64,000) 228,000
Valuation reserve...................................... 64,000 (64,000)
-------- --------
Provision for income taxes........................... $ -- $499,000
======== ========
</TABLE>
F-27
<PAGE>
RADIO ONE OF ATLANTA, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets--
Reserve for bad debts................................ $ 44,000 $118,000
NOL carryforward..................................... 79,000 --
-------- --------
Total deferred tax assets.......................... 123,000 118,000
Deferred tax liabilities--
Depreciation and amortization........................ (59,000) (58,000)
-------- --------
Net deferred tax asset................................. 64,000 60,000
Less: Valuation reserve................................ (64,000) --
-------- --------
Net deferred taxes included in the accompanying
consolidated balance sheets........................... $ -- $ 60,000
======== ========
</TABLE>
A 100% valuation reserve was applied against the net deferred tax asset as
of December 31, 1997, as its realization was not more likely than not to be
realized. During 1998, this valuation allowance was reversed as the deferred
tax assets would likely be realized. During 1998, the Company utilized its
entire net operating loss carryforward.
8. RELATED PARTY TRANSACTIONS:
The Company is affiliated with Radio One, Inc., as a stockholder of the
Company is also a stockholder of Radio One, Inc. The Company has a due to
affiliate of $68,000 and $4,000 as of December 31, 1997 and 1998, respectively,
for expenses paid by Radio One, Inc. on behalf of the Company and for
administrative services. During the years ended December 31, 1996, 1997 and
1998, the Company incurred expenses of $100,000, $100,000 and $300,000,
respectively, for administrative services which Radio One, Inc. performed for
the Company.
The Company has $77,000 and $120,000 recorded as a receivable from Mableton
Investment Group (Mableton) as of December 31, 1997 and 1998, respectively.
These balances represent costs incurred by the Company for research and
feasibility studies on behalf of a new radio station to be owned by Mableton, a
company owned by a stockholder of the Company.
The stockholders of the Company have agreed in principle to sell their
shares of the Company to Radio One, Inc. in exchange for shares of Radio One,
Inc.'s common stock. A stockholder of the Company will receive a $1.2 million
fee related to this acquisition.
Subsequent to year end, the Company made a $263,000 unsecured loan to an
employee. The loan bears interest at 5.56% and is payable on demand.
9. PROFIT SHARING:
The Company's employees participate in a 401K profit sharing plan sponsored
by Radio One, Inc., an affiliate of the Company (see Note 8). The Company's
contribution is at the direction of its board of directors. The Company made no
contributions to the plan during fiscal years 1996, 1997 or 1998.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Radio One, Inc.:
We have audited the accompanying balance sheet of Bell Broadcasting Company
(a Michigan Corporation) (the Company) as of December 31, 1997, and the related
statements of operations, changes in stockholders' equity and cash flows for
the years ended December 31, 1996 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bell Broadcasting Company
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland,
August 28, 1998
F-29
<PAGE>
BELL BROADCASTING COMPANY
BALANCE SHEETS
As of December 31, 1997 and June 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 226,000 $ 186,000
Trade accounts receivable, net of allowance for
doubtful accounts of $28,000 and $69,000,
respectively....................................... 951,000 918,000
Current portion of notes receivable................. 13,000 14,000
Prepaid expenses and other.......................... 34,000 6,000
---------- ----------
Total current assets.............................. 1,224,000 1,124,000
PROPERTY AND EQUIPMENT, net........................... 859,000 1,139,000
NOTES RECEIVABLE, net of current portion.............. 491,000 184,000
OTHER ASSETS.......................................... 38,000 20,000
---------- ----------
Total assets...................................... $2,612,000 $2,467,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 251,000 $ 92,000
Accrued expenses.................................... 198,000 61,000
Current portion of long-term debt................... 149,000 --
---------- ----------
Total current liabilities......................... 598,000 153,000
LONG-TERM DEBT, net of current portion................ 592,000 --
---------- ----------
Total liabilities................................. 1,190,000 153,000
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock--Class A, $2.00 par value, 800 shares
authorized, issued and outstanding................. 2,000 2,000
Common stock--Class B, $2.00 par value, 24,000
shares authorized,
20,071 and 20,071 shares issued and outstanding,
respectively....................................... 40,000 40,000
Additional paid-in capital.......................... 198,000 1,308,000
Retained earnings................................... 1,182,000 964,000
---------- ----------
Total stockholders' equity........................ 1,422,000 2,314,000
---------- ----------
Total liabilities and stockholders' equity........ $2,612,000 $2,467,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-30
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------ ------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Broadcast revenue, including
barter revenue of $121,000,
$151,000, $14,000 and
$73,000, respectively...... $ 3,917,000 $ 4,571,000 $1,916,000 $2,326,000
Less: Agency commissions.... 537,000 537,000 229,000 301,000
----------- ----------- ---------- ----------
Net broadcast revenue..... 3,380,000 4,034,000 1,687,000 2,025,000
----------- ----------- ---------- ----------
OPERATING EXPENSES:
Programming and technical... 1,154,000 1,335,000 723,000 675,000
Selling, general and
administrative............. 1,520,000 1,544,000 715,000 748,000
Corporate expenses.......... 849,000 816,000 301,000 663,000
Depreciation and
amortization............... 130,000 148,000 68,000 63,000
----------- ----------- ---------- ----------
Total operating expenses.. 3,653,000 3,843,000 1,807,000 2,149,000
----------- ----------- ---------- ----------
Operating (loss) income... (273,000) 191,000 (120,000) (124,000)
----------- ----------- ---------- ----------
INTEREST EXPENSE.............. 75,000 81,000 38,000 52,000
OTHER (INCOME) EXPENSE, net... (5,000) 54,000 59,000 28,000
----------- ----------- ---------- ----------
(Loss) income before
(benefit) provision for
income taxes............. (343,000) 56,000 (217,000) (204,000)
(BENEFIT) PROVISION FOR INCOME
TAXES........................ (78,000) 44,000 (164,000) 14,000
----------- ----------- ---------- ----------
Net (loss) income......... $ (265,000) $ 12,000 $ (53,000) $ (218,000)
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Retained Stockholders'
Class A Class B Capital Earnings Equity
------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996.. $2,000 $39,000 $ 98,000 $1,435,000 $1,574,000
Net loss................ -- -- -- (265,000) (265,000)
Stock options granted
below market........... -- -- 9,000 -- 9,000
Stock bonus
compensation........... -- -- 16,000 -- 16,000
Issuance of common
stock.................. -- -- 9,000 -- 9,000
------ ------- ---------- ---------- ----------
BALANCE, December 31,
1996..................... 2,000 39,000 132,000 1,170,000 1,343,000
Net income.............. -- -- -- 12,000 12,000
Stock options granted
below market........... -- -- 17,000 -- 17,000
Stock bonus
compensation........... -- 1,000 32,000 -- 33,000
Issuance of common
stock.................. -- -- 17,000 -- 17,000
------ ------- ---------- ---------- ----------
BALANCE, December 31,
1997..................... 2,000 40,000 198,000 1,182,000 1,422,000
Net loss................ -- -- -- (218,000) (218,000)
Capital contributed from
former owners.......... -- -- 672,000 -- 672,000
Capital contributed from
owners................. -- -- 438,000 -- 438,000
------ ------- ---------- ---------- ----------
BALANCE, June 30, 1998
(Unaudited).............. $2,000 $40,000 $1,308,000 $ 964,000 $2,314,000
====== ======= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
BELL BROADCASTING COMPANY
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997
and the Six Months Ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
December 31, June 30,
-------------------- -----------------------
1996 1997 1997 1998
--------- --------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income.............. $(265,000) $ 12,000 $ (53,000) $(218,000)
Adjustments to reconcile net
(loss) income to net cash from
operating activities:
Depreciation and
amortization................ 130,000 148,000 68,000 63,000
Compensation expense related
to stock bonus plan and
stock granted below market
price....................... 25,000 50,000 -- --
Loss on disposal of assets... -- (8,000) (8,000) --
Effect of change in operating
assets and liabilities--
Trade accounts receivable.. 190,000 (156,000) (35,000) 33,000
Prepaid expenses and
other..................... (101,000) 119,000 19,000 19,000
Other assets............... (1,000) (17,000) -- 18,000
Accounts payable........... 56,000 (94,000) (108,000) (159,000)
Accrued expenses........... (125,000) 41,000 (68,000) (137,000)
--------- --------- --------- ---------
Net cash flows from
operating activities.... (91,000) 95,000 (185,000) (381,000)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets... -- 22,000 22,000 --
Principal payments received on
notes......................... -- 6,000 -- 306,000
Acquisition of property and
equipment..................... (140,000) (211,000) (109,000) (403,000)
--------- --------- --------- ---------
Net cash flows from
investing activities.... (140,000) (183,000) (87,000) (97,000)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from the issuance of
debt.......................... 739,000 220,000 103,000 438,000
Repayment of debt.............. (642,000) (211,000) -- (438,000)
Issuance of common stock....... 9,000 17,000 -- --
Contributed capital............ -- -- -- 438,000
--------- --------- --------- ---------
Net cash flows from
financing activities.... 106,000 26,000 103,000 438,000
--------- --------- --------- ---------
DECREASE IN CASH................. (125,000) (62,000) (169,000) (40,000)
CASH, beginning of period........ 413,000 288,000 288,000 226,000
--------- --------- --------- ---------
CASH, end of period.............. $ 288,000 $ 226,000 $ 119,000 $ 186,000
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid.................. $ 73,000 $ 81,000 $ 38,000 $ 55,000
========= ========= ========= =========
Income taxes paid.............. $ 117,000 $ -- $ -- $ 7,000
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Bell Broadcasting Company (the Company), a Michigan corporation, is a radio
broadcaster, broadcasting on two stations, WCHB-AM and WDTJ-FM (formerly WCHB-
FM), both located in the Detroit metropolitan area. During 1996, the Federal
Communications Commission (FCC) approved the construction permit to increase
WCHB-AM's signal from 25 kilowatts to 50 kilowatts. In addition, in September
1997, the Canadian government approved WCHB-AM's proposal for a nighttime
increase to 15 kilowatts, and the FCC granted a construction permit for the
nighttime increase. The Company also owns one station in Kingsley, Michigan,
WJZZ-AM.
The financial statements for the six months ended June 30, 1997 and 1998,
are unaudited, but, in the opinion of management, such financial statements
have been presented on the same basis as the audited financial statements for
the year ended December 31, 1997, and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations and cash flows for these periods.
Financial Instruments
Financial instruments as of December 31, 1997, consist of cash, trade
accounts receivables, notes receivables, accounts payable, accrued expenses and
long-term debt, all of which the carrying amounts approximate fair value.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
accelerated and straight-line methods over the estimated useful lives of the
related assets.
The components of the Company's property and equipment as of December 31,
1997, are as follows:
<TABLE>
<CAPTION>
December 31, Period of
1997 Depreciation
------------ --------------
<S> <C> <C>
Construction in progress....................... $ 122,000 --
Land........................................... 581,000 --
Buildings and improvements..................... 149,000 10 to 31 years
Transmitter towers............................. 754,000 7 to 15 years
Equipment...................................... 555,000 5 to 15 years
Leasehold improvements......................... 12,000 7 to 19 years
----------
Total property and equipment................. 2,173,000
Less: Accumulated depreciation................. 1,314,000
----------
Property and equipment, net.................... $ 859,000
==========
</TABLE>
F-34
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
Depreciation expense for the fiscal years ended December 31, 1996 and 1997,
were $120,000 and $141,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Sale of WKNX
In June 1997, the Company sold the assets and rights of WKNX-AM for
approximately $210,000 and recognized a loss of approximately $22,000. In
connection with the sale, the Company obtained a note receivable from the
purchasers of the station. The terms of the sale call for a note receivable
bearing interest at 10% per annum, requiring monthly payments of approximately
$3,000 through June 2007. The note is secured by certain real estate and
personal property and the pledge of the stock of Frankenmuth.
Supplemental Cash Flow Information
The Company issued 200 and 400 shares each of class B common stock to two
former officers of the Company during 1996 and 1997, respectively, at a price
below the stock's estimated fair market value. Compensation expense of $25,000
and $50,000 was recorded in 1996 and 1997, respectively, in connection with the
issuance (Note 6). In June 1997, the Company sold the assets and rights to
WKNX-AM for a note receivable in the amount of $210,000. (Also see Note 7.)
New Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components.
The Company believes the adoption of SFAS No. 130 will have no impact on the
financial statements as the Company has no comprehensive income adjustments.
F-35
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
During 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes a
new approach for determining segments within a company and reporting
information on those segments. The Company has performed a preliminary
assessment of this statement and believes that no disclosure is necessary as
the Company has only one segment.
2. NOTES RECEIVABLE--RELATED PARTY:
In 1995, the Company loaned the trust of a deceased shareholder $300,000
and received a note receivable. The note bears interest at the mid-term
applicable federal rate (6.31% and 5.63% as of December 31, 1996 and 1997,
respectively), with principal and interest due December 2000. The principal
and all interest due were paid on June 30, 1998.
3. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Note payable to bank, payable in monthly installments of
$12,000, including interest at 9.35% per annum, secured by
land, equipment and the Company's AM broadcast license...... $641,000
Note payable to bank, payable in monthly installments of
$7,000, including interest at 9.35% per annum, secured by
land, equipment and the Company's FM broadcast license...... 51,000
Note payable to bank, payable in monthly installments of
$1,000, including interest at 8.99% per annum, secured by
vehicles.................................................... 40,000
Note payable in monthly installments of $400, including
interest at 11% per annum, secured by transportation
equipment................................................... 9,000
--------
Total...................................................... 741,000
Less: Current portion...................................... 149,000
--------
Total long-term debt....................................... $592,000
========
</TABLE>
This outstanding debt was repaid as of June 30, 1998.
4. COMMITMENTS AND CONTINGENCIES:
Leases
During 1996 and 1997, the Company leased the facilities under three
separate operating leases, one of which was with a related party (the former
owners of the Company). The related party lease was on a month-to-month basis
for the FM station building, at a rate of $800 per month. The second lease
covers the FM tower and transmitter space and expires in May 1999, with one
optional renewal of five years. Monthly rent under this lease is currently
$4,000. In addition, the Company leases equipment under two operating leases
expiring in 1999. Monthly rent under the equipment leases is $450.
Rental expense for the years ended December 31, 1996 and 1997, was $70,000
and $60,000, respectively.
F-36
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
Litigation
The Company has been named as defendant in various legal proceedings arising
out of the normal course of business. It is the opinion of management, after
consultation with legal counsel, that the amount, if any, of the Company's
ultimate liability under all current legal proceedings will not have a material
adverse effect on the financial position or results of operations of the
Company.
5. STOCK OPTION AND BONUS PLANS:
The Company had an Incentive stock option plan (the stock option plan). The
Company granted options to two employees of the Company to purchase up to 200
shares each of class B common stock at a price equal to 50% of the fair market
value of the stock on the exercise date. In 1996, the stock option plan was
extended for two years (January 1, 1996 to December 31, 1997). During 1996 and
1997, the Company granted options under the plan and recognized compensation
expense because the option price was below the estimated market price of the
stock.
The Company also had a Stock Bonus Plan (the Bonus Plan). Under provisions
of the Bonus Plan, the Company could, at its discretion, award two employees of
the Company up to an aggregate of 200 shares each of class B common stock. The
Bonus Plan was extended in 1996 for two years. During 1996, the Company awarded
50 shares to each employee under the Bonus Plan. During 1997, the Company
awarded 100 shares to each employee for services performed. Compensation
expense equal to the fair market value of the class B common stock awarded has
been recorded for 1996 and 1997 to reflect such awards.
Agreements between the Company and three of its former stockholders
generally provide that none of their shares (as specifically defined) may be
sold, transferred or exchanged without the prior written consent of the
Company.
In addition, the agreements specify the rights of the stockholders and the
obligations of the Company in the event of death, termination of employment or
change in control of the Company. The agreements state that if a change in
control of the Company occurs, the employees' right to exercise their options
will cease. If the Company is required to repurchase any of the shares, the
purchase price shall be the fair market value of such shares (as specifically
defined). As of June 30, 1998, all options terminated.
The Company accounts for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25. Had compensation cost for the plans
been determined consistent with Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation," the difference in the Company's
pro forma net income would have been immaterial.
F-37
<PAGE>
BELL BROADCASTING COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
6. INCOME TAXES:
A reconciliation of the statutory federal income taxes to the recorded
income tax (benefit) provision for the years ended December 31, 1996 and 1997
is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997
--------- --------
<S> <C> <C>
Statutory tax (@ 35% rate)............................ $(120,000) $ 19,000
Effect of state taxes, net of federal................. 16,000 3,000
Effect of graduated tax rate.......................... -- (12,000)
Other nondeductible items............................. 23,000 28,000
Nondeductible compensation expense.................... 3,000 6,000
--------- --------
(Benefit) provision for income taxes................ $ (78,000) $ 44,000
========= ========
</TABLE>
The components of the (benefit) provision for income taxes for the years
ended December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1997
--------- -------
<S> <C> <C>
Current................................................ $(105,000) $20,000
Deferred............................................... 27,000 24,000
--------- -------
(Benefit) provision for income taxes................... $ (78,000) $44,000
========= =======
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liability as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Deferred tax assets--
Reserve for bad debts....................................... $ 10,000
Deferred tax liability--
Other....................................................... (13,000)
--------
Net deferred tax liability.................................... $ (3,000)
========
</TABLE>
7. SALE OF CAPITAL STOCK:
On December 23, 1997, the stockholders of the Company entered into an
Agreement with Radio One, Inc. to sell all of the issued and outstanding shares
of the capital stock of the Company for approximately $34 million. Prior to the
sale, the stockholders of the Company assumed certain debt totaling $771,000
and acquired certain assets of the Company totaling $99,000. The net book value
of the assets acquired and the liabilities assumed prior to the sale was
recorded as a capital contribution from the owners. The sale to Radio One, Inc.
was completed on June 30, 1998.
F-38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Allur-Detroit, Inc.:
We have audited the accompanying balance sheet of Allur-Detroit, Inc. (a
wholly owned subsidiary of Syndicated Communications Venture Partners II, LP)
for the year ended December 31, 1997, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of Allur-Detroit, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Allur-Detroit, Inc. for the
year ended December 31, 1997, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ MITCHELL & TITUS LLP
Washington, D.C.,
March 25, 1998
F-39
<PAGE>
ALLUR-DETROIT, INC.
BALANCE SHEETS
As of December 31, 1997 and September 30, 1998
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................. $ 86,000 $ 172,000
Trade accounts receivable, net of allowance of
$77,000.......................................... 410,000 805,000
Prepaid expenses and other........................ 55,000 42,000
---------- ----------
Total current assets............................ 551,000 1,019,000
PROPERTY AND EQUIPMENT, net......................... 75,000 82,000
INTANGIBLE ASSETS, net.............................. 7,563,000 7,429,000
---------- ----------
Total assets.................................... $8,189,000 $8,530,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable an accrued expenses.............. $ 829,000 $1,056,000
---------- ----------
NOTES PAYABLE AND DEFERRED INTEREST................. 3,229,000 3,892,000
---------- ----------
Total liabilities............................... 4,058,000 4,948,000
---------- ----------
COMMITMENTS
CUMULATIVE REDEEMABLE PREFERRED STOCK,
$2,000 par value, 1,050 shares authorized, 1,050
and 975 shares issued and outstanding,
respectively....................................... 2,100,000 1,950,000
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 1,000 shares
authorized and 975 shares issued and
outstanding...................................... 1,000 1,000
Additional paid-in capital........................ 2,463,000 2,463,000
Accumulated deficit............................... (433,000) (832,000)
---------- ----------
Total stockholders' equity...................... 2,031,000 1,632,000
---------- ----------
Total liabilities and stockholders' equity...... $8,189,000 $8,530,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-40
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE:
Broadcast revenue....................... $2,473,000 $1,884,000 $2,509,000
Less: Agency commissions................ 259,000 207,000 379,000
---------- ---------- ----------
Net broadcast revenue................. 2,214,000 1,677,000 2,130,000
---------- ---------- ----------
OPERATING EXPENSES:
Programming and technical............... 894,000 477,000 592,000
Selling, general and administrative..... 1,467,000 1,247,000 1,412,000
Corporate expenses...................... 36,000 27,000 27,000
Depreciation and amortization........... 245,000 183,000 167,000
---------- ---------- ----------
Total operating expenses.............. 2,642,000 1,934,000 2,198,000
---------- ---------- ----------
Operating loss........................ (428,000) (257,000) (68,000)
---------- ---------- ----------
INTEREST EXPENSE.......................... 222,000 147,000 281,000
OTHER INCOME (EXPENSE), net............... 217,000 126,000 (50,000)
---------- ---------- ----------
Loss before provision for income
taxes................................ (433,000) (278,000) (399,000)
PROVISION FOR INCOME TAXES................ -- -- --
---------- ---------- ----------
Net loss.............................. $ (433,000) $ (278,000) $ (399,000)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996........ $1,000 $2,463,000 $ -- $2,464,000
Net loss........................ -- -- (433,000) (433,000)
------ ---------- --------- ----------
BALANCE, December 31, 1997........ 1,000 2,463,000 (433,000) 2,031,000
Net loss........................ -- -- (399,000) (399,000)
------ ---------- --------- ----------
BALANCE, September 30, 1998
(unaudited)...................... $1,000 $2,463,000 $(832,000) $1,632,000
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE>
ALLUR-DETROIT, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997
and for the Nine Months Ended September 30, 1997 and 1998
<TABLE>
<CAPTION>
September 30,
December 31, ------------------------
1997 1997 1998
------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $ (433,000) $ (278,000) $(399,000)
Adjustments to reconcile net loss to
net cash from operating activities:
Depreciation and amortization........ 245,000 183,000 167,000
Effect of change in operating assets
and liabilities--
Trade accounts receivable.......... 32,000 (95,000) (395,000)
Prepaid expenses and other......... (45,000) (59,000) 13,000
Accounts payable and accrued
expenses.......................... (172,000) (60,000) 227,000
----------- ----------- ---------
Net cash flows from operating
activities...................... (373,000) (309,000) (387,000)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment.................. (39,000) -- (40,000)
----------- ----------- ---------
Net cash flows from investing
activities...................... (39,000) -- (40,000)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of preferred stock.......... -- -- (150,000)
Repayment of debt...................... (1,676,000) (1,257,000) --
Proceeds from notes payable............ 2,152,000 1,614,000 663,000
----------- ----------- ---------
Net cash flows from financing
activities...................... 476,000 357,000 513,000
----------- ----------- ---------
NET INCREASE IN CASH..................... 64,000 48,000 86,000
CASH, beginning of period................ 22,000 22,000 86,000
----------- ----------- ---------
CASH, end of period...................... $ 86,000 $ 70,000 $ 172,000
=========== =========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING INFORMATION:
Interest paid.......................... $ 81,000 $ -- $ --
=========== =========== =========
Income taxes paid...................... $ -- $ -- $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
Allur-Detroit, Inc. (the Company) is a subsidiary of Syndicated
Communications Ventures Partners II, LP (SYNCOM II). The Company's sole
activity is to operate WWBR-FM, a radio station that broadcasts from Detroit,
Michigan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Interim Financial Statements
The financial statements for the nine months ended September 30, 1997 and
1998, are unaudited but, in the opinion of management, such financial
statements have been presented on the same basis as the audited financial
statements for the year ended December 31, 1997, and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations and cash flows
for these periods.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method.
The components of property and equipment as of December 31, 1997 and
September 30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, September 30, Period of
1997 1998 Depreciation
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Leasehold improvements........... $ 7,000 $ 8,000 10 years
Transmitter equipment............ 17,000 17,000 5 years
Studio and other technical
equipment....................... 46,000 59,000 7 years
Office furniture and equipment... 45,000 54,000 5 years
Automobiles...................... -- 17,000 5 years
-------- --------
115,000 155,000
Less: Accumulated depreciation
and
amortization.................... 40,000 73,000
-------- --------
Property and equipment, net...... $ 75,000 $ 82,000
======== ========
</TABLE>
Intangible Assets
Management periodically reviews its unamortized intangible asset balances to
ensure that those assets have not been impaired in accordance with the
definition of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived assets and for Long-Lived assets to be
disposed of." As of
F-44
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
September 30, 1998, management has made such evaluations and believes that the
net intangible asset is realizable. In any period which management believes an
impairment has occurred, management will write down the asset in accordance
with this standard.
Revenue Recognition
Revenue for advertising is recognized when the commercial is broadcasted.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
The Company broadcasts certain customers' advertising in exchange for
equipment, merchandise and services. The estimated fair value of the equipment,
merchandise or services received is recorded as deferred barter costs and the
corresponding obligation to broadcast advertising is recorded as deferred
barter revenue. The deferred barter costs are expensed or capitalized as they
are used, consumed or received. Deferred barter revenue is recognized as the
related advertising is aired.
Financial Instruments
Financial instruments as of December 31, 1997, and September 30, 1998,
consist of cash, trade accounts receivable, accounts payable, accrued expenses,
preferred stock, and notes payable all of which the carrying amounts
approximate fair value.
New Accounting Standards
During 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, "Reporting Comprehensive Income" (SFAS No. 130), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for reporting and display of comprehensive income and its components.
The Company adopted SFAS No. 130 during the nine months ended September 30,
1998, and has determined that the adoption of this statement has no impact on
the financial statements, as the Company has no comprehensive income
adjustments.
During 1997, the FASB issues SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131), which is effective for
fiscal years beginning after December 15, 1997. This statement establishes a
new approach for determining segments within a company and reporting
information on those segments. The Company adopted this statement during the
nine months ended September 30, 1998 and concluded that it had only one
segment.
3. INTANGIBLE ASSETS:
Intangible asset balances and periods of amortization as of December 31,
1997, and September 30, 1998, are as follows:
<TABLE>
<CAPTION>
December 31, September 30, Period of
1997 1998 Amortization
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Goodwill and FCC license.......... $7,768,000 $7,768,000 40 years
Less: Accumulated amortization.... 205,000 339,000
---------- ----------
$7,563,000 $7,429,000
========== ==========
</TABLE>
F-45
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Depreciation and amortization expense for the year ended December 31, 1997,
and for the nine months ended September 30, 1997 and 1998, was $245,000,
$183,000 and $167,000, respectively.
4. RELATED PARTY TRANSACTIONS:
Notes Payable
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ -------------
(Unaudited)
<S> <C> <C>
SYNCOM II--long-term debt--10% annually......... $1,676,000 $1,676,000
SYNCOM III--long-term debt--10% annually........ 1,362,000 1,362,000
SYNCOM II--line of credit--8% annually.......... 191,000 854,000
---------- ----------
Total......................................... $3,229,000 $3,892,000
========== ==========
</TABLE>
The debt owed to SYNCOM II and SYNCOM III are due and payable in lump-sum
the earlier of a sale of the license of Allur-Detroit, a sale of substantially
all of the assets of Allur-Detroit, a sale of a controlling interest in the
common stock shares of Allur-Detroit, or at December 31, 1999 (see Note 7). The
debt is secured by the FCC license and assets of the Company.
Management Fee
The Company entered into an agreement with Syncom Management, Inc. whereby
it pays $36,000 per year for accounting services. Syncom Management, Inc. also
provides management and financial services to SYNCOM II, the owner of the
Company.
5. COMMITMENTS:
Operating Leases
The Company rents office space and transmittal sites under several operating
leases. These leases expire at various dates through 2002, with most containing
renewal options.
Future minimum rental payments under such noncancellable operating leases as
of September 30, 1998, are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998 (remaining)................................................ $37,000
1999............................................................ 148,000
2000............................................................ 148,000
2001............................................................ 91,000
2002............................................................ 98,000
</TABLE>
F-46
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. CUMULATIVE REDEEMABLE PREFERRED STOCK:
On December 4, 1992, the Company issued 1,050 shares of cumulative
redeemable preferred stock to PNC Bank, formerly Continental Bank. The
preferred stock earns cumulative annual dividends of eight percent (8%) of par
value.
Under the terms of the PNC Bank/Allur-Detroit settlement agreement of
December 31, 1996, redemption of the preferred stock shall occur at the date
when: (i) repayment is effected in full of principal and interest on lenders'
new notes, or (ii) at the maturity date of the new notes when the lenders
shall cause the Company to repay, whichever happens first. In such a
situation, all outstanding shares of preferred stock shall be redeemed at a
price equal to the par value, plus an amount equal to both accrued and
undeclared dividends payable from available funds as stipulated in Section 2.2
of the Shareholders Agreement dated December 4, 1992. As of September 30,
1998, circumstances supporting the redemption of the preferred stock did not
occur.
The Company had not declared and has not recorded an accrual for cumulative
preferred stock dividends. At September 30, 1998, cumulative unpaid preferred
dividends amounted to $958,667. Such dividends, if declared, would have been
paid out of cumulative retained earnings of the Company, if any.
On February 20, 1998, the Company paid $150,000, representing a partial
payment toward the required redemption of the preferred stock held by PNC
Bank. From this date hereof, the balance due for payment on the preferred
stock is $1,950,000. Subsequent to September 30, 1998, the $1,950,000 of
preferred stock was redeemed for the face value without the dividend being
declared.
7. INCOME TAXES:
The Company accounted for income taxes in accordance with Statement of
Financial Accounting standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred income taxes reflect the impact of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and amounts recognized for tax purposes. Deferred taxes are
based on tax laws as currently enacted.
A reconciliation of the statutory federal income taxes to the recorded
income tax provision for the year ended December 31, 1997, is as follows:
<TABLE>
<S> <C>
Statutory Tax (@ 35% rate)..................................... $(152,000)
Effect of state taxes, net of federal.......................... (18,000)
Effect of graduated tax rate................................... 5,000
Valuation reserve.............................................. 165,000
---------
Provision for income taxes................................... $ --
=========
</TABLE>
The components of the provision for income taxes for the years ended
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current......................................................... $ --
Deferred........................................................ (165,000)
Valuation reserve............................................... 165,000
---------
Provision for income taxes.................................... $ --
=========
</TABLE>
F-47
<PAGE>
ALLUR-DETROIT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the financial statement and tax basis of assets and liabilities. The
significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997, are as follows:
<TABLE>
<S> <C>
Deferred tax assets--
NOL carryforward............................................. $180,000
Deferred tax liabilities--
Depreciation................................................. (15,000)
Net deferred tax asset-- ...................................... 165,000
Less:Valuation reserve......................................... (165,000)
--------
Deferred taxes included in the accompanying consolidated
balance sheets................................................ $ --
========
</TABLE>
A 100% valuation reserve has been applied against the net deferred tax
asset, as its realization is not considered to be more likely than not to be
realized.
As of December 31, 1997, there was approximately $400,000 of available net
operating loss carry forwards that expire through 2011.
8. SUBSEQUENT EVENTS:
On October 26, 1998, the stockholders of the Company entered into a stock
purchase agreement with Radio One, Inc. to sell all of the issued and
outstanding shares of capital stock of the Company for approximately $27
million. The sale is expected to be completed by December 31, 1998.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying combined balance sheets of the Richmond
operations of Sinclair Telecable, Inc., consisting of stations WCDX-FM, WPLZ-
FM, WJRV-FM and WGCV-AM (the Stations) as of December 31, 1997 and 1998, and
the related combined statements of operations and changes in station equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Stations' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Stations and may not be indicative of the
conditions that would have existed or the results of operations had the
Stations been operated as an unaffiliated entity. As discussed in Note 1,
certain corporate overhead and other expenses represent allocations made by the
Stations' parent.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Richmond
operations of Sinclair Telecable, Inc., consisting of stations WCDX-FM, WPLZ-
FM, WJRV-FM and WGCV-AM as of December 31, 1997 and 1998 and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 5, 1999
F-49
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED BALANCE SHEETS
As of December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 55,000 $ 142,000
Trade accounts receivable, net of allowance for
doubtful accounts of $39,000 and $50,000,
respectively.......................................... 1,282,000 1,400,000
Prepaid expenses and other............................. 47,000 31,000
---------- ----------
Total current assets................................. 1,384,000 1,573,000
PROPERTY AND EQUIPMENT, net.............................. 922,000 1,202,000
INTANGIBLE ASSETS, net................................... 4,065,000 3,692,000
---------- ----------
Total assets......................................... $6,371,000 $6,467,000
========== ==========
LIABILITIES AND STATION EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.................. $ 423,000 $ 566,000
COMMITMENTS
STATION EQUITY........................................... 5,948,000 5,901,000
---------- ----------
Total liabilities and station equity................. $6,371,000 $6,467,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-50
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF OPERATIONS AND CHANGES IN STATION EQUITY
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
REVENUE:
Broadcast revenue, including barter revenue of
$249,000
and $304,000, respectively.......................... $8,330,000 $8,509,000
Less: Agency commissions............................. 1,041,000 1,051,000
---------- ----------
Net broadcast revenue.............................. 7,289,000 7,458,000
---------- ----------
OPERATING EXPENSES:
Program and technical................................ 1,313,000 1,498,000
Selling, general and administrative.................. 3,025,000 3,170,000
Corporate allocations................................ 311,000 413,000
Depreciation and amortization........................ 569,000 648,000
---------- ----------
Total operating expenses........................... 5,218,000 5,729,000
---------- ----------
Broadcast operating income......................... 2,071,000 1,729,000
---------- ----------
Net income......................................... 2,071,000 1,729,000
STATION EQUITY, beginning of year...................... 6,548,000 5,948,000
NET TRANSFER TO PARENT................................. (2,671,000) (1,776,000)
---------- ----------
STATION EQUITY, end of year............................ $5,948,000 $5,901,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-51
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 2,071,000 $ 1,729,000
Adjustments to reconcile net income to net cash
from operating activities--
Depreciation and amortization.................... 569,000 648,000
Effect of change in operating assets and
liabilities--
Trade accounts receivable...................... 109,000 (118,000)
Prepaid expenses and other..................... (33,000) 16,000
Accounts payable and accrued expenses.......... (63,000) 143,000
----------- -----------
Net cash flows from operating activities..... 2,653,000 2,418,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. (49,000) (555,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer to parent............................. (2,671,000) (1,776,000)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..... (67,000) 87,000
CASH AND CASH EQUIVALENTS, beginning of year......... 122,000 55,000
----------- -----------
CASH AND CASH EQUIVALENTS, end of year............... $ 55,000 $ 142,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-52
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
The radio stations, WCDX-FM, WPLZ-FM, WJRV-FM and WGCV-AM (Stations) are
broadcast in the Richmond area. WCDX-FM, WPLZ-FM and WGCV-AM are owned by
Sinclair Telecable, Inc. (Sinclair). WJRV-FM is owned by Commonwealth
Broadcasting LLC (Commonwealth), a related party. Sinclair owns 25% of
Commonwealth. The remaining 75% of Commonwealth is owned by some of the
shareholders of Sinclair. Commonwealth has been fully consolidated into the
combined financial statements of Sinclair Telecable, Inc. and Affiliates
(combined, Sinclair).
In March 1999, Sinclair entered into a letter of intent with Radio One, Inc.
to sell ultimately all of the tangible and intangible assets of these Richmond
operations for approximately $34 million. Sinclair and Radio One, Inc. intend
to enter into a local marketing agreement under which Radio One, Inc. will
operate these Richmond operations prior to completing its acquisition of these
operations. Accordingly, these combined financial statements of the Richmond
operations include the stations to be purchased by Radio One, Inc. All inter-
station transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Stations are allocated certain corporate expenses for services provided
by Sinclair based upon the percentage of revenue of each station to total
revenue of all stations operated by Sinclair. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services or if
Stations had been operated on a stand-alone basis.
Sinclair corporate departmental expenses of $311,000 and $413,000 have been
allocated to the Stations during 1997 and 1998, respectively, for management
salaries and benefits, legal services, corporate office, and other
miscellaneous expenses.
The acquisition of station WJRV-FM was partially financed with debt which
was allocated to the Stations. This debt and related accrued interest expense
was eliminated through cash transfers to the parent. Cash transfers in excess
of amounts required to repay debt and secured interest reduces the Stations
equity and is recorded as net transfer to parent.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and money market accounts at
various commercial banks. All cash equivalents have original maturities of 90
days or less. For cash and cash equivalents, cost approximates market value.
F-53
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Stations'
property and equipment as of December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Depreciation
--------- ---------- --------------
<S> <C> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................. $ 57,000 $ 57,000 --
Building and leasehold improvements... 140,000 147,000 31 or 10 years
Furniture and fixtures................ 179,000 241,000 7 or 10 years
Broadcasting equipment................ 2,145,000 2,611,000 5 to 7 years
Vehicles.............................. 55,000 75,000 5 years
--------- ----------
2,576,000 3,131,000
Less: Accumulated depreciation........ 1,654,000 1,929,000
--------- ----------
Property and equipment, net........ $ 922,000 $1,202,000
========= ==========
</TABLE>
Depreciation expenses for the fiscal years ended December 31, 1997 and 1998,
were $263,000 and $275,000, respectively.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time
in lieu of cash payments for the rights to such programming. These contracts
are recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
Financial Instruments
Financial instruments as of December 31, 1997 and 1998, consist of cash and
cash equivalents, trade accounts receivables, accounts payable and accrued
expenses, all of which the carrying amounts approximate fair value except.
F-54
<PAGE>
THE RICHMOND OPERATIONS OF SINCLAIR TELECABLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
December 31, 1997 and 1998
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1997 1998 Amortization
---------- ---------- ------------
<S> <C> <C> <C>
FCC broadcast license..................... $4,489,000 $4,489,000 15 Years
Goodwill.................................. 45,000 45,000 40 Years
Debt financing............................ 27,000 27,000 Life of Debt
Organizational costs...................... 99,000 -- 5 Years
---------- ----------
Total................................... 4,660,000 4,561,000
Less: Accumulated amortization.......... 595,000 869,000
---------- ----------
Net intangible assets................... $4,065,000 $3,692,000
========== ==========
</TABLE>
Amortization expense for the fiscal years ended December 31, 1997 and 1998,
was $306,000 and $373,000, respectively. During 1998, the Stations wrote off
approximately $69,000 of unamortized start-up costs.
3. INCOME TAXES:
As the Stations' parent company is an S corporation, no provision for income
taxes has been included in the accompanying statements of operations.
4. COMMITMENTS:
The Stations lease office space for its office and broadcast studios and a
tower site under operating leases which expire through January 1, 2020. Rent
expense for the years ended December 31, 1997 and 1998, was $152,000 and
$154,000, respectively. The future minimum rental payments for the next five
years are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1999........................................................... $ 185,000
2000........................................................... 183,000
2001........................................................... 189,000
2002........................................................... 196,000
2003........................................................... 104,000
Thereafter..................................................... 1,335,000
</TABLE>
5. PROFIT SHARING:
Sinclair Telecable, Inc. has a 401(k) profit sharing plan for its employees.
Sinclair Telecable, Inc. can contribute to the plan at the discretion of its
board of directors. Sinclair Telecable, Inc. did not contribute to the plan
during fiscal year 1997 or 1998.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.:
We have audited the accompanying combined balance sheet of the stations WKJS-FM
and WSOJ- FM of FM-100 (the Stations) as of December 31, 1998, and the related
combined statements of operations and changes in station deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Stations' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Stations and may not be indicative of the
conditions that would have existed or the results of operations had the
Stations been operated as an unaffiliated entity. As discussed in Note 1,
certain corporate overhead and other expenses represent allocations made by the
Stations' parent.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the stations WKJS-
FM and WSOJ-FM of FM-100, Inc., as of December 31, 1998, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
March 10, 1999
F-56
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,000
Trade accounts receivable, net of allowance for doubtful
accounts of $28,000 326,000
----------
Total current assets 360,000
PROPERTY AND EQUIPMENT, net 1,079,000
INTANGIBLE ASSETS, net 3,343,000
----------
Total assets $4,782,000
==========
</TABLE>
LIABILITIES AND STATION DEFICIT
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 168,000
Capital lease obligations 13,000
----------
Total current liabilities 181,000
LONG-TERM LIABILITIES:
Allocation of long-term debt 5,000,000
Capital lease obligations 49,000
----------
Total liabilities 5,230,000
COMMITMENTS AND CONTINGENCIES
STATION DEFICIT (448,000)
----------
Total liabilities and station deficit $4,782,000
==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-57
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN STATION DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUE:
Broadcast revenue, including barter revenue of $169,000 $1,187,000
Less: Agency commissions 125,000
----------
Net broadcast revenue 1,062,000
----------
OPERATING EXPENSES:
Program and technical 192,000
Selling, general and administrative 810,000
Corporate allocations 15,000
Depreciation and amortization 416,000
----------
Total operating expenses 1,433,000
----------
Operating loss (371,000)
----------
OTHER INCOME (EXPENSE):
Interest expense (500,000)
Other income 21,000
----------
Total other income (expense), net (479,000)
----------
Net loss (850,000)
STATION EQUITY, beginning of year 177,000
NET TRANSFER FROM PARENT 225,000
----------
STATION DEFICIT, end of year $ (448,000)
==========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-58
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(850,000)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 416,000
Effect of change in operating assets and liabilities-
Trade accounts receivable (257,000)
Prepaid expenses and other 3,000
Accounts payable and accrued expenses 99,000
---------
Net cash flows used in operating activities (589,000)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (58,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfer from parent 225,000
Proceeds from parent debt 427,000
---------
Net cash flows from financing activities 652,000
---------
INCREASE IN CASH 5,000
CASH, beginning of year 29,000
---------
CASH, end of year $ 34,000
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 477,000
=========
</TABLE>
The accompanying notes are an integral part of this combined balance sheet.
F-59
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
The radio stations, WKJS-FM and WSOJ-FM (the Stations) are broadcast in the
Richmond area. The combined financial statements of the Stations were formed
effective January 4, 1998, when FM 100, Inc. purchased station WKJS-FM for
$4,500,000. Station WSOJ-FM was owned by FM 100, Inc. since 1994.
In February 1999, FM 100, Inc. signed an agreement with Radio One, Inc. to sell
all tangible and intangible assets for approximately $12,000,000, subject to
certain earn-out adjustments. The sale is expected to close during 1999. The
accompanying combined financial statements include the assets, liabilities and
results of operations of those stations to be acquired by Radio One, Inc. and
were prepared from the financial statements of FM 100, Inc. All inter-station
transactions have been eliminated in consolidation.
The Stations have incurred an operating loss of $371,000 and a net loss of
$850,000 for the year ended December 31, 1998. Also, as of December 31, 1998,
the Stations had a station deficit of $448,000. These factors, along with
others could negatively impact future operations of the Stations.
Basis of Presentation
The accompanying combined financial statements are presented on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Stations are allocated certain corporate expenses for services provided by
FM 100, Inc. based upon the percentage of revenue of each station to total
revenue of all stations operated by FM 100, Inc. Though management is of the
opinion that all allocations used are reasonable and appropriate, other
allocations might be used that could produce results substantially different
from those reflected herein and these cost allocations might not be indicative
of amounts which might be paid to unrelated parties for similar services if the
Stations had been operated on a stand-alone basis.
FM 100, Inc. corporate departmental expenses of $15,000 have been allocated to
the Stations during 1998 for accounting services and other miscellaneous
expenses.
F-60
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are recorded at cost and are being depreciated on a
straight-line basis over various periods. The components of the Stations's
property and equipment as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1998 Depreciation
---------- ------------
<S> <C> <C>
PROPERTY AND EQUIPMENT:
Land.................................................. $ 173,000 --
Building.............................................. 646,000 15 years
Furniture and fixtures................................ 211,000 10 years
Broadcasting equipment................................ 262,000 7 years
Vehicles.............................................. 17,000 5 years
----------
1,309,000
Less: Accumulated depreciation........................ 230,000
----------
Property and equipment, net......................... $1,079,000
==========
</TABLE>
Depreciation expense for the fiscal year ended December 31, 1998, was $102,000.
Revenue Recognition
In accordance with industry practice, revenue for broadcast advertising is
recognized when the commercial is broadcast.
Barter Arrangements
Certain program contracts provide for the exchange of advertising air time in
lieu of cash payments for the rights to such programming. These contracts are
recorded as the programs are aired at the estimated fair value of the
advertising air time given in exchange for the program rights.
Financial Instruments
Financial instruments as of December 31, 1998, consist of cash and cash
equivalents, trade accounts receivables, accounts payable, accrued expenses,
long-term debt, and capital leases, all of which the carrying amounts
approximate fair value.
Supplemental Cash Flow Information
During 1998, FM 100, Inc. obtained a $5,000,000 loan from a bank of which
$4,500,000 was used to finance the purchase of WKJS-FM and $73,000 was used to
pay debt issuance cost. The remaining $427,000 transferred to the Stations for
operating purposes.
F-61
<PAGE>
STATIONS WKJS-FM AND WSOJ-FM OF FM 100 INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
2. INTANGIBLE ASSETS:
Intangible assets are being amortized on a straight-line basis over various
periods. The intangible asset balances and periods of amortization as of
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Period of
1998 Amortization
---------- ------------
<S> <C> <C>
FCC broadcast license................................. $3,628,000 15 Years
Debt financing........................................ 73,000 Life of Debt
----------
Total............................................... 3,701,000
Less: Accumulated amortization...................... 358,000
----------
Net intangible assets............................... $3,343,000
==========
</TABLE>
Amortization expense for the fiscal year ended December 31, 1998, was $314,000.
3. LONG-TERM DEBT:
The acquisition of WKJS-FM was financed with $4,500,000 of debt which has been
allocated to the Stations. The debt accrued interest at 10% during 1998 and was
originally due January 6, 1999, and has been refinanced to be due January 6,
2000.
FM 100, Inc. has borrowed $500,000 from a bank which has been allocated down to
the Stations. The debt accrued interest at 10% during 1998 and was originally
due January 6, 1999 and has been refinanced to be due January 6, 2000.
As of December 31, 1998, the Stations had various capital leases for equipment.
4. INCOME TAXES:
As the Stations' parent company is an S-Corporation, no provision for income
taxes has been included in the accompanying statements of operations.
5. COMMITMENTS:
The Stations lease office space for their office and broadcast studios under an
operating lease which expires during 1999. Rent expense for the year ended
December 31, 1998, was $16,064. The future minimum rental payment is $9,311.
F-62
<PAGE>
[LOGO OF RADIO ONE APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being
registered, other than underwriting discounts and commissions, to be paid by
Radio One:
<TABLE>
<S> <C>
SEC registration fee.................................................. *
Printing and engraving fees........................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Blue Sky fees and expenses............................................ *
Trustee fees.......................................................... *
Directors' and Officers' Insurance.................................... *
Miscellaneous......................................................... *
Total............................................................... $
</TABLE>
- --------
* To be filed by amendment
Item 14. Indemnification of Directors and Officers.
Radio One's Amended and Restated By-Laws incorporate substantially the
provisions of the General Corporation Law of the State of Delaware (the "DGCL")
in providing for indemnification of directors and officers against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
such person is or was an officer or director of Radio One. In addition, Radio
One is authorized to indemnify employees and agents of Radio One and may enter
into indemnification agreements with its directors and officers providing
mandatory indemnification to them to the maximum extent permissible under
Delaware law.
Radio One's Amended and Restated Certificate of Incorporation provides that
Radio One shall indemnify (including indemnification for expenses incurred in
defending or otherwise participating in any proceeding) its directors and
officers to the fullest extent authorized or permitted by the DGCL, as it may
be amended, and that such right to indemnification shall continue as to a
person who has ceased to be a director or officer of Radio One and shall inure
to the benefit of his or her heirs, executors and administrators except that
such right shall not apply to proceedings initiated by such indemnified person
unless it is a successful proceeding to enforce indemnification or such
proceeding was authorized or consented to by the board of directors. Radio
One's certificate of incorporation also specifically provides for the
elimination of the personal liability of a director to the corporation and its
stockholders for monetary damages for breach of fiduciary duty as director. The
provision is limited to monetary damages, applies only to a director's actions
while acting within his or her capacity as a director, and does not entitle
Radio One to limit director liability for any judgment resulting from (a) any
breach of the director's duty of loyalty to Radio One or its stockholders;
(b) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law; (c) paying an illegal dividend or approving
an illegal stock repurchase; or (d) any transaction from which the director
derived an improper benefit.
Section 145 of the DGCL provides generally that a person sued (other than in
a derivative suit) as a director, officer, employee or agent of a corporation
may be indemnified by the corporation for reasonable expenses, including
counsel fees, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that the person's conduct was unlawful. In the case
of a derivative suit, a director, officer, employee or agent of the corporation
may be indemnified by the corporation for reasonable expenses, including
attorneys' fees, if the person has acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to, which such director, officer,
employee or agent has been adjudged to be liable to the corporation unless the
Delaware Court of Chancery or the court in which such action
II-1
<PAGE>
or suit was brought shall determine that such person is fairly and reasonably
entitled to indemnity for proper expenses. Indemnification is mandatory under
section 145 of the DGCL in the case of a director or officer who is successful
on the merits in defense of a suit against him.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify Radio One, the directors, certain
officers and controlling persons of Radio One, Inc. against certain
liabilities, including liabilities under the Securities Act. Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
Radio One has entered into indemnification agreements with the directors
and certain officers pursuant to which Radio One has agreed to maintain
directors' and officers' insurance and to indemnify such officers to the
fullest extent permitted by applicable law except for certain claims described
therein. [Reference is made to the form of Director and Officer
Indemnification Agreement filed as Exhibit [to come] hereto.]
Radio One maintains directors and officers liability insurance for the
benefit of its directors and certain of its officers.
Item 15. Recent Sales of Unregistered Securities.
On May 19, 1997, Radio One issued approximately $85.0 million (aggregate
principal amount) of 12% senior subordinated notes to certain investors. Such
notes were offered pursuant to Rule 144A under the Securities Act.
On May 19, 1997, Radio One issued approximately $20.9 million of Series A
and Series B 15% senior cumulative preferred stock to certain investors. Such
shares were issued pursuant to the exemption from registration provided by
Section 4(2) of Securities Act.
On January 25, 1999, Radio One issued an aggregate of 51,192 shares of
common stock to its Chief Financial Officer. These shares were issued pursuant
to the exemption from registration provided by Rule 701 under the Securities
Act.
On February 25, 1999, pursuant to a plan of recapitalization, Radio One
issued to the holders of its class A common stock, in exchange for all of the
outstanding shares of class A common stock, 46.15 shares of class B common
stock and 92.3 shares of class C common stock. These shares were issued
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act.
On March 30, 1999, Radio One issued approximately 3.3 million shares of
common stock to the shareholders of ROA in connection with Radio One's
acquisition of ROA. These shares were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this registration
statement.
<TABLE>
<S> <C>
1.1(/5/) Form of Underwriting Agreement
3.1(/6/) Certificate of Incorporation of Radio One, Inc.
3.2(/6/) Amended and Restated By-laws of Radio One, Inc.
4.1(/1/) Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One Licenses,
Inc. and United States Trust Company of New York.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1998 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
II- 2
<PAGE>
<TABLE>
<S> <C>
4.(/2/) 2 First Supplemental Indenture dated as of June 30, 1998, to Indenture dated as of
May 15, 1997, by and among Radio One, Inc., as Issuer and United States Trust
Company of New York, as Trustee, by and among Radio One, Inc., Bell Broadcasting
Company, Radio One of Detroit, Inc., and United States Trust Company of New York,
as Trustee.
4.(/3/) 3 Second Supplemental Indenture dated as of December 23, 1998, to Indenture dated
as of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Allur-
Detroit, Allur Licenses, Inc., and United States Trust Company of New York, as
Trustee.
4.(/1/) 4 Purchase Agreement dated as of May 14, 1997 among Radio One, Inc., Radio One
Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc Capital
Markets, Inc.
4.(/1/) 5 Registration Rights Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc
Capital Markets, Inc.
4.6(1/) / Standstill Agreement dated as of May 19, 1997 among Radio One, Inc., Radio One
Licenses, Inc., NationsBank of Texas, N.A., United States Trust Company of New
York and the other parties thereto.
4.(/4/) 7 Standstill Agreement dated as of June 30, 1998 among Radio One, Inc., the
subsidiaries of Radio One, Inc., United States Trust Company of New York and the
other parties thereto.
5.(/5/) 1 Form of Opinion and consent of Kirkland & Ellis.
8.(/5/) 1 Form of Opinion and consent of Kirkland & Ellis.
101(/1/) . Office Lease dated February 3, 1997 between National Life Insurance Company and
Radio One, Inc. for premises located at 5900 Princess Garden Parkway, Lanham,
Maryland, as amended on February 24, 1997.
102(/1/) . Purchase Option Agreement dated February 3, 1997 between National Life Insurance
Company and Radio One, Inc. for the premises located at 5900 Princess Garden
Parkway, Lanham, Maryland.
103(/1/) . Office Lease commencing November 1, 1993 between Chalrep Limited Partnership and
Radio One, Inc., with respect to the property located at 100 St. Paul Street,
Baltimore, Maryland.
104(/1/) . Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc. and the other parties thereto.
105(/4/) . First Amendment to Preferred Stockholders' Agreement dated as of June 30, 1998
among Radio One, Inc., Radio One Licenses, Inc., and the other parties thereto.
106(/1/) . Warrantholders' Agreement dated as of June 6, 1995, as amended by the First
Amendment to Warrantholders' Agreement dated as of May 19, 1997, among Radio One,
Inc., Radio One Licenses, Inc. and the other parties thereto.
107(/1/) . Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Syncom Capital Corporation.
108(/1/) . Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Alliance Enterprise Corporation.
109(/1/) . Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Greater Philadelphia Venture Capital Corporation, Inc.
1010(/1/). Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Opportunity Capital Corporation.
1011(/1/). Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Capital Dimensions Venture Fund, Inc.
10.12(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to TSG Ventures Inc.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1998 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
II-3
<PAGE>
<TABLE>
<S> <C>
10.13(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Fulcrum Venture Capital Corporation.
10.14(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Alta Subordinated Debt Partners III, L.P.
10.15(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to BancBoston Investments, Inc.
10.16(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997, issued
to Grant M. Wilson.
10.17(/4/) Credit agreement dated June 30, 1998 among Radio One, Inc., as the borrower and
NationsBank, N.A., as Documentation Agent and Credit Suisse First Boston as the
Agent.
10.18(/1/) Management Agreement dated as of August 1, 1996 by and between Radio One, Inc.
and Radio One of Atlanta, Inc.
10.19(/1/) Fifth Amendment dated as of July 31, 1997 to that certain Letter of Intent dated
March 12, 1997 by and between Radio One, Inc. and Allied Capital Financial
Corporation, as amended.
10.20(/1/) Sixth Amendment dated as of September 8, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital Financial
Corporation, as amended.
10.21(/1/) Time Management and Services Agreement dated March 17, 1998, among WYCB
Acquisition Corporation, Broadcast Holdings, Inc., and Radio One, Inc.
10.22(/1/) Stock Purchase Agreement dated December 23, 1997, between the shareholders of
Bell Broadcasting Company and Radio One, Inc.
10.23(/1/) Option and Stock Purchase Agreement dated November 19, 1997, among Allied Capital
Financial Corporation, G. Cabell Williams III, Broadcast Holdings, Inc. and WYCB
Acquisition Corporation.
10.24(/1/) Amended and Restated Warrant of Radio One, Inc., dated January 9, 1998, issued to
TSG Ventures L.P.
10.25(/1/) Stock Purchase Warrant of Radio One, Inc., dated March 16, 1998 issued to Allied
Capital Financial Corporation.
10.26(/1/) Amended and Restated credit agreement dated May 19, 1997 among several lenders,
NationsBank of Texas, N.A. and Radio One, Inc.
10.27(/1/) First Amendment to credit agreement dated December 31, 1997 among several
lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.28(/1/) Amendment to Preferred Stockholders' Agreement dated as of December 31, 1997
among Radio One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.29(/1/) Assignment and Assumption Agreement dated October 23, 1997, between Greater
Philadelphia Venture Capital Corporation, Inc. and Alfred C. Liggins, III.
10.30(/1/) Agreement dated February 20, 1998 between WUSQ License Limited Partnership and
Radio One, Inc.
10.31(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Capital Dimensions Venture Fund Inc.
10.32(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Fulcrum Venture Capital Corporation.
10.33(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Syncom Capital Corporation.
10.34(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alfred C. Liggins, III.
10.35(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to TSG Ventures L.P.
10.36(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alliance Enterprise Corporation.
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1998 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
II-4
<PAGE>
<TABLE>
<S> <C>
10.37(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Alta Subordinated Debt Partners III, L.P.
10.38(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to BancBoston Investments Inc.
10.39(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998 issued
to Grant M. Wilson.
10.40(/5/) Merger Agreement dated as of March 30, 1999 relating to the acquisition of Radio
One of Atlanta, Inc.
10.41(/5/) Asset Purchase Agreement dated as of November 23, 1998 (as amended on December 4,
1998) relating to the acquisition of WFUN-FM, licensed to Bethalto, Illinois.
10.42(/5/) Asset Purchase Agreement relating to the Acquisition of WENZ-FM and WERE-AM, both
licensed to Cleveland, Ohio.
10.43(/5/) Asset Purchase Agreement dated as of February 10, 1999 relating to the
acquisition of WDYL-FM, licensed to Chester, Virginia.
10.44(/5/) Asset Purchase Agreement dated as of February 26, 1999 relating to the
acquisition of WJKS-FM, licensed to Crewe Virginia, and WSOJ-FM, licensed
Petersburg, Virginia.
10.45(/5/) [Asset Purchase Agreement relating to the acquisition of WCDX-FM, licensed to
Mechanicsville, Virginia, WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM
licensed to Richmond, Virginia, and WGCV-AM licensed to Petersburg, Virginia.]
10.46(/7/) Stock Purchase Agreement dated as of October 26, 1998, by and between Radio One
and Syndicated Communications Venture Partners, II, L.P.
10.47(/5/) Second Amendment to Preferred Stockholders' Agreement dated as of November 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.48(/5/) Third Amendment to Preferred Stockholders' Agreement dated as of December 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.49(/5/) Fourth Amendment to Preferred Stockholders' Agreement dated as of December 31,
1998 among Radio One, Inc., Radio Once Licenses, Inc. and the other parties
thereto.
10.50(/5/) Amended and Restated Credit Agreement dated as of February 26, 1999, among Radio
One, Inc., as the borrower, and Nations Bank, N.A., as Administrative Agent, and
Credit Suisse First Boston, as the Documentation Agent.
10.51(/5/) Fifth Amendment to Preferred Stockholders' Agreement dated as of February 26,
1999 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
21.1(/6/) Subsidiaries of Radio One, Inc.
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3(/5/) Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4(/5/) Consent of Kirkland & Ellis (included in Exhibit 8.1).
23.5(/8/) Consent of Larry Marcus
27.1 Financial Data Schedule (included on pages S1-S3).
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report filed on Form 10-
K for the period ended December 31, 1997 (File No. 333-30795; Film No.
98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1998 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer
II-5
<PAGE>
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the registrant pursuant to Rule 424 (b) (1) or (4)
or 497 (h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Lanham, Maryland on
April 13, 1999.
RADIO ONE, INC.
BY: ____________________________
/s/ Alfred C. Liggins, III
Name: Alfred C. Liggins, III
Title: President and Chief Executive
Officer
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on behalf of the following persons by
Scott R. Royster, their true and lawful attorney, on the date indicated.
RADIO ONE, INC.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
_/s/ Catherine L. Hughes__ Chairperson of the Board of Directors April 13, 1999
CATHERINE L. HUGHES
____/s/ Terry L. Jones____ Director April 13, 1999
TERRY L. JONES
___/s/ Brian W. McNeill___ Director April 13, 1999
BRIAN W. MCNEILL
/s/ Alfred C. Liggins, III President and Chief Executive Officer April 13, 1999
ALFRED C. LIGGINS, III (Principal Executive Officer)
and Director
___/s/ Scott R. Royster___ Executive Vice President and April 13, 1999
SCOTT R. ROYSTER Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
II-8
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................... S-2
Schedule II - Valuation and Qualifying Accounts............................ S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Radio One, Inc.
We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets and statements of operations, changes in
stockholders' deficit and cash flows of Radio One, Inc. and subsidiaries (the
Company) included in this registration statement and have issued our report
thereon dated . Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule listed
in the accompanying index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Baltimore, Maryland,
, 1999
S-2
<PAGE>
RADIO ONE, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, and 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Acquired Balance
Beginning Charged to from at End
Description of Year Expense Acquisitions Deductions of Year
----------- ---------- ---------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
1996.................. $ 669 $ 628 $ -- $ 532 $ 765
1997.................. 765 894 -- 755 904
1998.................. 904 1,942 258 1,861 1,243
TAX VALUATION RESERVE:
1996.................. 1,067 -- -- 1,067 --
1997.................. -- 2,058 -- -- 2,058
1998.................. 2,058 -- -- 2,058 --
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1(/5/) Form of Underwriting Agreement
3.1(/6/) Certificate of Incorporation of Radio One, Inc.
3.2(/6/) Amended and Restated By-laws of Radio One, Inc.
4.1(/1/) Indenture dated as of May 15, 1997 among Radio One, Inc., Radio One Licenses,
Inc. and United States Trust Company of New York.
4.2(/2/) First Supplemental Indenture dated as of June 30, 1998, to Indenture dated as
of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Bell
Broadcasting Company, Radio One of Detroit, Inc., and United States Trust
Company of New York, as Trustee.
4.3(/3/) Second Supplemental Indenture dated as of December 23, 1998, to Indenture dated
as of May 15, 1997, by and among Radio One, Inc., as Issuer and United States
Trust Company of New York, as Trustee, by and among Radio One, Inc., Allur-
Detroit, Allur Licenses, Inc., and United States Trust Company of New York, as
Trustee.
4.4(/1/) Purchase Agreement dated as of May 14, 1997 among Radio One, Inc., Radio One
Licenses, Inc., Credit Suisse First Boston Corporation and NationsBanc Capital
Markets, Inc.
4.5(/1/) Registration Rights Agreement dated as of May 14, 1997 among Radio One, Inc.,
Radio One Licenses, Inc., Credit Suisse First Boston Corporation and
NationsBanc Capital Markets, Inc.
4.6(/1/) Standstill Agreement dated as of May 19, 1997 among Radio One, Inc., Radio One
Licenses, Inc., NationsBank of Texas, N.A., United States Trust Company of New
York and the other parties thereto.
4.7(/4/) Standstill Agreement dated as of June 30, 1998 among Radio One, Inc., the
subsidiaries of Radio One, Inc., United States Trust Company of New York and
the other parties thereto.
5.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
8.1(/5/) Form of Opinion and consent of Kirkland & Ellis.
10.1(/1/) Office Lease dated February 3, 1997 between National Life Insurance Company and
Radio One, Inc. for premises located at 5900 Princess Garden Parkway, Lanham,
Maryland, as amended on February 24, 1997.
10.2(/1/) Purchase Option Agreement dated February 3, 1997 between National Life
Insurance Company and Radio One, Inc. for the premises located at 5900 Princess
Garden Parkway, Lanham, Maryland.
10.3(/1/) Office Lease commencing November 1, 1993 between Chalrep Limited Partnership
and Radio One, Inc., with respect to the property located at 100 St. Paul
Street, Baltimore, Maryland.
10.4(/1/) Preferred Stockholders' Agreement dated as of May 14, 1997 among Radio One,
Inc., Radio One Licenses, Inc. and the other parties thereto.
10.5(/4/) First Amendment to Preferred Stockholders' Agreement dated as of June 30, 1998
among Radio One, Inc., Radio One Licenses, Inc., and the other parties thereto.
<CAPTION>
Page
----------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1999 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 Filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.6(/1/) Warrantholders' Agreement dated as of June 6, 1995, as amended by the First
Amendment to Warrantholders' Agreement dated as of May 19, 1997, among Radio
One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.7(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Syncom Capital Corporation.
10.8(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Alliance Enterprise Corporation.
10.9(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Greater Philadelphia Venture Capital Corporation, Inc.
10.10(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Opportunity Capital Corporation.
10.11(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Capital Dimensions Venture Fund, Inc.
10.12(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to TSG Ventures Inc.
10.13(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Fulcrum Venture Capital Corporation.
10.14(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Alta Subordinated Debt Partners III, L.P.
10.15(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to BancBoston Investments, Inc.
10.16(/1/) Amended and Restated Warrant of Radio One, Inc. dated as of May 19, 1997,
issued to Grant M. Wilson.
10.17(/4/) Credit agreement dated June 30, 1998 among Radio One, Inc., as the borrower and
NationsBank, N.A., as Documentation Agent and Credit Suisse First Boston as the
Agent.
10.18(/1/) Management Agreement dated as of August 1, 1996 by and between Radio One, Inc.
and Radio One of Atlanta, Inc.
10.19(/1/) Fifth Amendment dated as of July 31, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital
Financial Corporation, as amended.
10.20(/1/) Sixth Amendment dated as of September 8, 1997 to that certain Letter of Intent
dated March 12, 1997 by and between Radio One, Inc. and Allied Capital
Financial Corporation, as amended.
10.21(/1/) Time Management and Services Agreement dated March 17, 1998, among WYCB
Acquisition Corporation, Broadcast Holdings, Inc., and Radio One, Inc.
10.22(/1/) Stock Purchase Agreement dated December 23, 1997, between the shareholders of
Bell Broadcasting Company and Radio One, Inc.
10.23(/1/) Option and Stock Purchase Agreement dated November 19, 1997, among Allied
Capital Financial Corporation, G. Cabell Williams III, Broadcast Holdings, Inc.
and WYCB Acquisition Corporation.
10.24(/1/) Amended and Restated Warrant of Radio One, Inc., dated January 9, 1998, issued
to TSG Ventures L.P.
<CAPTION>
Page
----------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1999 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 Filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
<PAGE>
<TABLE>
<CAPTION>
Exhib No. Description
---------- -----------
<C> <S>
10.25(/1/) Stock Purchase Warrant of Radio One, Inc., dated March 16, 1998 issued to
Allied Capital Financial Corporation.
10.26(/1/) Amended and Restated credit agreement dated May 19, 1997 among several lenders,
NationsBank of Texas, N.A. and Radio One, Inc.
10.27(/1/) First Amendment to credit agreement dated December 31, 1997 among several
lenders, NationsBank of Texas, N.A. and Radio One, Inc.
10.28(/1/) Amendment to Preferred Stockholders' Agreement dated as of December 31, 1997
among Radio One, Inc., Radio One Licenses, Inc. and the other parties thereto.
10.29(/1/) Assignment and Assumption Agreement dated October 23, 1997, between Greater
Philadelphia Venture Capital Corporation, Inc. and Alfred C. Liggins, III.
10.30(/1/) Agreement dated February 20, 1998 between WUSQ License Limited Partnership and
Radio One, Inc.
10.31(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Capital Dimensions Venture Fund Inc.
10.32(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Fulcrum Venture Capital Corporation.
10.33(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Syncom Capital Corporation.
10.34(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alfred C. Liggins, III.
10.35(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to TSG Ventures L.P.
10.36(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alliance Enterprise Corporation.
10.37(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Alta Subordinated Debt Partners III, L.P.
10.38(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to BancBoston Investments Inc.
10.39(/4/) Amended and Restated Warrant of Radio One, Inc. dated as of June 30, 1998
issued to Grant M. Wilson.
10.40(/5/) Merger Agreement dated as of March 30, 1999 relating to the acquisition of
Radio One of Atlanta, Inc.
10.41(/5/) Asset Purchase Agreement dated as of November 23, 1998 (as amended on December
4, 1998) relating to the acquisition of WFUN-FM, licensed to Bethalto,
Illinois.
10.42(/5/) Asset Purchase Agreement relating to the Acquisition of WENZ-FM and WERE-AM,
both licensed to Cleveland, Ohio.
10.43(/5/) Asset Purchase Agreement dated as of February 10, 1999 relating to the
acquisition of WDYL-FM, licensed to Chester, Virginia.
10.44(/5/) Asset Purchase Agreement dated as of February 26, 1999 relating to the
acquisition of WJKS-FM, licensed to Crewe Virginia, and WSOJ-FM, licensed
Petersburg, Virginia.
<CAPTION>
Page
---------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1999 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 Filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
<PAGE>
<TABLE>
<CAPTION>
Exhib No. Description
---------- -----------
<C> <S>
10.45(/5/) [Asset Purchase Agreement relating to the acquisition of WCDX-FM, licensed to
Mechanicsville, Virginia, WPLZ-FM, licensed to Petersburg, Virginia, WJRV-FM
licensed to Richmond, Virginia, and WGCV-AM licensed to Petersburg, Virginia.]
10.46(/7/) Stock Purchase Agreement dated as of October 26, 1998, by and between Radio One
and Syndicated Communications Venture Partners, II, L.P.
10.47(/5/) Second Amendment to Preferred Stockholders' Agreement dated as of November 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.48(/5/) Third Amendment to Preferred Stockholders' Agreement dated as of December 23,
1998 among Radio One, Inc., Radio One Licenses, Inc. and the other parties
thereto.
10.49(/5/) Fourth Amendment to Preferred Stockholders' Agreement dated as of December 31,
1998 among Radio One, Inc., Radio Once Licenses, Inc. and the other parties
thereto.
10.50(/5/) Amended and Restated Credit Agreement dated as of February 26, 1999, among
Radio One, Inc., as the borrower, Nations Bank, N.A., as the Administrative
Agent, and Credit Suisse First Boston, as the Documentation Agent.
10.51(/5/) Fifth Amendment to Preferred Stockholders' Agreement dated as of February 26,
1999 among Radio One, Inc., Radio One Licenses, Inc. and other parties thereto.
21.1(/6/) Subsidiaries of Radio One, Inc.
23.1 Consent of Arthur Andersen, L.L.P.
23.2 Consent of Mitchell & Titus, L.L.P.
23.3(/5/) Consent of Kirkland & Ellis (included in Exhibit 5.1).
23.4(/5/) Consent of Kirkland & Ellis (included in Exhibit 8.1).
23.5(/8/) Consent of Larry Marcus.
27.1 Financial Data Schedule (included on pages S1-S3).
<CAPTION>
Page
---------- ----
<C>
</TABLE>
- --------
(1) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1997 (File No. 333-30795; Film No. 98581327).
(2) Incorporated by reference to Radio One's Current Report on Form 8-K
filed July 13, 1998 (File No. 333-30795; Film No. 98665139).
(3) Incorporated by reference to Radio One's Current Report on Form 8-K
filed January 12, 1999 (File No. 333-30795; Film No. 99504706).
(4) Incorporated by reference to Radio One's Quarterly Report on Form 10-Q
for the period ended June 30, 1998 (File No. 333-30795; Film No. 98688998).
(5) To be filed by Amendment to this Registration Statement on Form S-1.
(6) Previously filed with Radio One's Registration Statement on Form S-1
filed on March 12, 1999 (File No. 333-74351; Film No. 99564316).
(7) Incorporated by reference to Radio One's Annual Report on Form 10-K for
the period ended December 31, 1999 (File No. 333-30795; Film No. 99581532).
(8) Incorporated by reference to Radio One's Amendment No. 1 to its
Registration Statement on Form S-1 Filed April 6, 1999 (File No. 333-74351;
Film No. 99588274).
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen L.L.P.
Baltimore, Maryland
April 13, 1999
<PAGE>
EXHIBIT 23.2
To the Board of Directors of
Radio One, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 25, 1998, on our audit of the financial statements of ALLUR-
DETROIT, INC. We also consent to the reference to our firm under the caption
"Experts".
/s/ Mitchell & Titus, LLP
Mitchell & Titus, LLP
Washington, D.C.
April 13, 1999
